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PRINCIPLES OF POLITICAL ECONOMY 



WORKS BY JOHN STUART MILL. 



POLITICAL ECONOMY. 

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PEINGIPLES 

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POLITICAL ECONOMY 

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SOCIAL PHILOSOPHY 



BY 

JOHN STUAET MILL 



' EDITED WITH AN INTEODUCTION BY 

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New Edition, cr. 8vo. Edited by W. J. Ashley 
November 1909 / Beprinted January 1915. 
(Se^J e n6er 1917. January 1920. 



INTRODUCTION 



The best Introduction to tlie Prmci'ples of Political Economy of 
John Stuart Mill is Mill's own account of his economic studies. They 
began at the age of thirteen ; when he was approaching the end of 
that unique educational process, enforced by the stern will of his 
father, which he has described in his Autobiography for the amaze- 
ment and pity of subsequent generations. 

" It wa? ' "'^''^ that he took me through a complete course 
of pohtical - -^y. His loved and intimate friend, Eicardo, 
had shortly before published the book which formed so great 
an epoch in pohtical economy ; a book which would never have 
been pubUshed or written, but for the entreaty and strong 
encouragement of my father. ... No didactic treatise em- 
bodying its doctrines, in a manner fit for learners, had yet 
appeared. My father, therefore, commenced instructing me in 
the science by a sort of lectures, which he dehvered to me in oui 
walks. He expounded each day a portion of the subject, and 
I gave him next day a written account of it, which he made me 
rewrite over and over again until it was clear, precise, and 
tolerably complete. In this manner I went through the whole 
extent of the science ; and the written outhne of it which resulted 
from my daily compte rendu served him afterwards as notes from 
which to write his Elements of Political Economy. After this 
I read Eicardo, giving an account daily of what I read, and: 
discussing . . . the collateral points which ofiered themselves 
in our progress. 

"On Money, as the most intricate part of the subject, he 
made me read in the same manner Eicardo's admirable pamphlets, 
written during . . . the Bulhon controversy ; to these succeeded, 
Adam Smith ; and ... it was one of my father's main objects 
to make me apply to Smith's more superficial view of pohtical 
economy the superior fights of Eicardo, and detect what, was 



i^,liLJx^UUliUi'^ 



fallacious in Smith's arguments, or erroneous in any of his 
conclusions. Such a mode of instruction was excellently calculated 
to form a thinker ; but it required to be worked by a thinker, as 
close and vigorous as my father. The path was a thorny one, 
even to him, and I am sure it was so to me, notwithstanding 
the strong interest I took in the subject. He was often, and 
much beyond reason, provoked by my failures in cases where 
success could not have been expected ; but in the main his 
method was right, and it succeeded.*' i 

After a year in France, during which he " passed some time in 
the house of M. Say, the eminent political economist, who was a 
friend and correspondent" of the elder Mill,^ he went a second 
time over the same ground under the same guidance. 

*' When I returned (1821), my father was just finishing for 
the press his Elements of Political Economy, and he made me 
perform an exercise on the manuscript, which Mr. Bentham 
practised on all his own writings, making what he called * margi- 
nal contents ' ; a short abstract of every paragraph, to enable 
the writer more easily to judge of, and improve, the order of 
the ideas, and the general character of the exposition." s 
This was soon after reaching the age of fifteen. Four years 
later, in 1825, he made a systematic survey of the field for the third 
time. Though he was still only nineteen, he was now fully embarked 
upon his career as an economist, and was contributing articles on 
currency and commercial policy to the Westminster Review. Yet 
when, in that year, John Mill and a number of his youthful friends 
entered upon "the joint study of several of the branches of science" 
which they " wished to be masters of," it was once more the work 
of the elder Mill which served as the basis. 

" We assembled to the number of a dozen or more. Mr. 
Grote lent a room of his house in Threadneedle Street. . . . 
We met two mornings in every week, from half-past eight till 
ten, at which hour most of us were called off to our daily occupa- 
tions. Our first subj ect was PoHtical Economy. We chose some 
systematic treatise as our text-book ; my father's Elements being 
our first choice. One of us read a chapter, or some smaller 
portion of the book. The discussion was then opened, and 
anyone who had an objection, or other remark to make, made 

* Autohiographt/, p. 27 (Pop. ed. p. 15). 
3 i^id. p. 60 (Pop. ed. p. 34). 

* Ibid. p. 62 (Pop. ed. p. 36). 



INTRODUCTION vii 

it. Our rule was to discuss thorougiily every point raised . . . 
until all who took part were satisfied with the conclusion they 
had individually arrived at ; and to follow up every topic . . . 
which the chapter or the conversation suggested, never leaving 
it until we had untied every knot." ^ 

The figure of James Mill has been singularly obscured by the 
more attractive personality of his son. It may possibly be open to 
discussion how far James Mill was a trustworthy interpreter of 
Ricardo. But what cannot be doubted is the extent and penetrating 
character of his influence. The evidence of his son may certainly 
be relied upon : 

" My father's writings and conversation drew round him a 
number of young men who had already imbibed, or who imbibed 
from him, a greater or smaller portion of his very decided poHtical 
and philosophical opinions. The notion that Bentham was sur- 
rounded by a band of disciples who received their opinions 
from his lips, is a fable. . . . The influence which Bentham 
exercised was by his writings. Through them he has produced, 
and is producing, eflects on the condition of mankind, wider 
and deeper than any which can be attributed to my father. 
He is a much greater name in history. But my father exercised 
a far greater personal ascendency. He was sought for the 
vigour and instructiveness of his conversation, and did use it 
largely as an instrument for the diffusion of his opinions. . . . 
" It was my father's opinions which gave the distinguishing 
character to the Benthamic or utilitarian propagandism of that 
time. They fell singly, scattered from him, in many directions, 
but they flowed from him in a continued stream principally in 
three channels. One was through me, the only mind directly 
formed by his instructions, and through whom considerable 
influence was exercised over various young men, who became, 
in their turn, propagandists. A second was through some of 
the Cambridge contemporaries of Charles Austin . . . some of. 
the more considerable of whom afterwards sought my father's i 
acquaintance. . . . The third channel was that of a younger: 
generation of Cambridge undergraduates, contemporary . . . 
with Eyton Tooke, who were . . . introduced by him toi 
my father. ... 

" Though none of us, probably, agreed in every respect with 

1 Ibid. p. 119 (Pop. ed. p. 68). 



viii INTRODUCTION 

my father, his opinions, as I said before, were the principal 
element which gave its colour and character to the little group 
of young men who were the first propagators of what was after- 
wards called ' Philosophic Eadicalism.' Their mode of thinking 
was characterized by ... a combination of Bentham's point 
of view with that of the modern political economy, and with 
the Hartleian metaphysics. Malthus's population principle 
was quite as much a banner, and point of union among us, 
as any opinion specially belonging to Bentham. This great 
doctrine ... we took up with ardent zeal, ... as indicating 
the sole means of realizing the improvability of human affairs 
by securing full employment at high wages to the whole 
labouring population through a voluntary restriction of the 
increase of their numbers." ^ 

What was true of James Mill's personal influence on the entire 
circle of young Philosophic Radicals and over the whole range of 
their beliefs, was peculiarly true of his influence on the economic 
opinions of his son. The impress was deep and indelible. For 
good or for ill, — and it is not the purpose of this Introduction 
to interpose between the reader and the author and to assign 
either praise or blame — John Mill's economics remained those 
of his father down to the end of his life. His economics, that 
is to say, in the sense of what he himself afterwards described as 
" the theoretic principles," ^ or again as the " abstract and purely 
scientific " ^ element in his writings : the whole, in fact, of the doctrine 
of Distribution and Exchange in its application to competitive 
conditions. After reading through the first three Books of the son's 
Principles of 1848, one has but to turn to the father's Elements 
of 1821 to realize that, though on outlying portions of the field 
(like the subject of Currency) John Mill had benefited by the 
discussions that had been going on during the interval, the main 
conclusions, as well as the methods of reasoning, are the same 
in the two treatises. How much of " the deposit " of doctrine, — 
if we may borrow a theological term, — came originally from 
Ricardo, how much from Malthus, from Adam Smith, from the 
French Physiocrats of the eighteenth century, and from the genera] 
movement of philosophical and political thought, is a subject on 
which much has been written, but on which we cannot now enter. 

1 Autobiography, p. 101 (Pop. ed. p. 58). 

2 Ibid. p. 242 (Pop. ed. p. 139). 
1^ 3 Ibid. p. 247 (Pop. ed. p. 142). 



INTRODUCTION k 

It is sufficient for our purpose to make this one point clear : that 
it was through James Mill, and, as shaped by James Mill, that it 
chiefly reached his son. 

Yet John Mill certainly thought, when he was writing his book 
in 1848, and still more evidently when he wrote his Autohiografhy 
in 1861, that there was a wide difference between himself and those 
whom he calls, in language curiously anticipating that of our own day, 
"the political economists of the old school," i or "the common run 
of pohtical economists." 2 And accordingly it is essential to observe 
that this difference consisted, not in any abandonment of the 
" abstract science," but in the placing of it in a new setting In 
substance he kept it intact ; but he sought to surround it, so to 
speak, with a new environment. 

To make this clear, we must return to Mill's mental history. 
Though eminently retentive of early impressions, he was also, in a 
very real sense, singularly open-minded ; and the work of his Hfe 
cannot be better described than in a happy phrase of his own 
coinage : it was a constant effort to " build the bridges and clear the 
paths " which should connect new truths with his " general system of 
thought," 3 ^'.g. with his Benthamite and Ricardian starting point. Of 
the influences, later than that of his father, which coloured his 
thoughts, three must be singled out for notice. They may briefly 
be summed up — though each name represents much besides — as 
those of Coleridge, of Comte, and of his wife. 

In Coleridge and in the Coleridgians — such as Maurice and 
Sterhng, whose acquaintance he made in 1828 — he recognised the 
Enghsh exponents of " the European reaction against the philo- 
sophy of the eighteenth century,"* and its Benthamite outcome. 
That reaction, he came to beheve, was in large measure justifiable ; 
and in two celebrated articles in the London and Westminster 
Review in 1838 and 1840 ^ he sought to expound Benthamism 
and Coleridgism as complementary bodies of truth. He did not, 
indeed, extend this appreciation to Coleridge's economic utterances, 
and compounded for the respect he paid to his pohtical philosophy 
by the vivacity with which he condemned his incursions intc 
the more sacred field : 



* Political Economy. Book iv. chap. vi. § 2. 

* Autohiogra'phy, p. 246 (Pop. ed. p. 141). 
8 Ihid. p. 243 (Pop. ed. p. 139). 

< Ihid. p. 128 (Pop. ed. p. 73). 

^ Reprinted in Dissertations and Discussions. Series I. 



X INTRODUCTION 

*' In political economy he writes like an arrant driveller, and 
it would have been well for his reputation had he never meddled 
with the subject. But this department of knowledge can now 
take care of itself." ^ 

What Coleridge helped him to realise was, firstly, the historical 
point of view in its relation to politics, and secondly, and as a 
corollary, the inadequacy of laissez fake. 

"The Germano-Coleridgian school produced ... a philo- 
sophy of society in the only form in which it is yet possible, that 
of a philosophy of history." ^ 
And again : 

" That series of great writers and thinkers, from Herder tc 
Michelet, by whom history . . . has b«en made a science of 
causes and effects, ... by making the events of the past have 
a meaning and an intelligible place in the gradual evolution of 
humanity, have afforded the only means of predicting and 
guiding the future." ^ 
Similarly, after pointing out that Coleridge was 

*' at issue with the let alone doctrine, or the theory that govern- 
ments can do no better than to do nothing," 
he remarks that it was 

" a doctrine generated by the manifest selfishness and incom- 
petence of modern European governments, but of which, as a 
general theory, we may now be permitted to say that one-half 
of it is true and the other half false." * 

It is not wonderful that the Bentham and Coleridge articles 
should " make a temporary alienation between Mill and his old 
associates and plant in their minds a painful misgiving as to his 
adhering to their principles," as we learn from Professor Bain, who 
became an intimate friend of Mill shortly afterwards.^ As early 
as 1837 Mrs. Grote had been " quite persuaded that the [London 
and Westminster] Review would cease to be an engine of propagating 
sound and sane doctrines on Ethics and PoHtics under J. M." ^ 
But it is a little surprising, perhaps, that by 1841 Mill was 
ready to describe himself in the privacy of correspondence as 
having definitely withdrawn from the Benthamite school ** in 

* Dissertations and Discussions, I. p. 452. 

2 Ihid. p. 425. 3 jii^^ p^ 426. 4 Hid. p. 453. 

^ Alexander Bain, John Stuart Mill, A Criticism : with 'personal recollections, 
X 66. 6 ii)id, p. 57 n. 



INTRODUCTION xi 

which I was brought up and in which I might almost say I waa 
born." 1 

The letter was that in Which Mill introduced himself to Comte^ 
the first of a remarkable series which has only recently seen the 
light. By the time he wrote it, the influence of Coleridge had been 
powerfully supplemented by that of the French philosopher. In- 
deed, with that tendency to run into extremes which was seldom 
quite absent from him, Mill even declared, in addressing Comte, 
that it was the impression produced as far back as 1828 by the 
reading of a very early work by Comte which had " more than any 
other cause determined his definite withdrawal from the Benthamite 
school." In his eager enthusiasm, he probably ante-dated Comte's 
influence. It seems to have been the first two volumes of the 
Positive Philosophy (of which the second appeared in 1837) that 
first interested Mill at all deeply in Comte's views ; though, as 
we shall notice later, he had long been familiar with ideas akin to 
them in the writings of the St. Simonians. 

However this may have been, it is abundantly clear that during 
the years 1841-3, when he was engaged in completing his 
great treatise on Logic, Mill was fascinated by Comte's general 
system, as set forth in the Positive Philosophy. In October, 1841, 
he wrote to Bain that he thought Comte's book, in spite of 
'* some mistakes," was " very near the grandest work of this age." 2 
In November, in the letter to Comte already quoted, he took the 
initiative and wrote to the French philosopher to express his " sym- 
pathy and adhesion." " I have read and re-read your Cours 
with a veritable intellectual passion," he told him. 

" I had indeed already entered into a line of thought some- 
what similar to your own ; but there were many things of thy 
first importance which I had still to learn from you and I hope 
to show you, by and by, that I have really learnt them. 
There are some questions of a secondary order on which my 
opinions are not in accord with yours ; some day perhaps this 
difference will disappear ; I am not flattering myself when I ' 
believe that I have no ill-founded opinion so deeply rooted as 
to resist a thorough discussion," 
such as he hoped to engage Comte in. It was for this reason 

^ L. L^vy-Bruhl, Lettres Inedites de John Stuart 31 ill a Auguste Comte 
(Paris, 1899), p. 2. Writing to Comte, Mill naturally employs Comtean phrase- 
ology, and speaks of *' ma sortie definitive de la section benthamiste de I'ecole 
revolutionnaire." a Bain, J. S. Mill, p. 63. 



xii INTRODUCTION 

that he ventured to put himself into communication with " that I 

one of the great minds of our time which I regard with most esteem 
and admiration," and beheved that their correspondence might be 
" of immense value " for him. And in the first edition of his 
Logic^ which appeared in 1843, he did not scruple to speak of 
Comte as " the greatest Hving authority on scientific methods in | 

general." ^ Into the causes of this enthusiasm it is unnecessary 
to enter. Mill was tired of Benthamism : a masterly attempt to 
construct a philosophy of Science and of Humanity, which paid 
attention at the same time to historical evolution and to the achieve- 
ments of modern physical and biological science (a side on which 
the Benthamite school had always been weak), and yet professed 
to be " positive," i.e. neither theological nor metaphysical — such 
an attempt had, for the time, an overmastering charm for him. The 
effect of his reading of Comte on his conception of the logic of 
the physical and biological sciences falls outside our present range. 
What we have now to notice are Comte's views with regard to 
poUtical economy. They cannot but have shaken, at any rate for 
a time, Mill's confidence that what he had learnt from his father 
could " take care of itself." 

Comte's ultimate object was, of course, the creation of " the 
Social Science " or " Sociology." To-day there are almost as many 
different conceptions of the scope of " sociology " as there are 
eminent sociologists ; so that it is perhaps worth while to add that 
Comte's ideal was a body of doctrine which should cover the life of 
human society in all its aspects. This science could be created, he 
held, only by the " positive " method — by the employment of the Art 
of Observation, in its three modes. Direct Observation or Obser- 
vation proper, Experiment, and Comparison.^ Each of these modes 
of Observation would necessarily assume a character appropriate to 
the field of enquiry. As to Observation proper : while the meta- 
physical school of the eighteenth century had grossly exaggerated 
its difficulties, on the other hand there was no utihty in mere 
collections of disconnected facts. Some sort of provisional hypo- 
thesis or theory or anticipation was necessary, if only to give 
direction to our enquiries. As to Experiment : direct Experiment, 
as in the physical sciences, was evidently impracticable, but its 
place could be taken by a consideration of " pathological " states 
Df society such as might fairly be called " indirect " Experiment. 

1 Cf. Bain, p. 72. 

' Cours de Philosophie Positive, vol. iv. (1839), pp. 412 seq. 



INTRODUCTION xili 

And as to Comparison : there was a form of this procedure, viz. the 
comparison of " the different consecutive conditions of humanity," — 
" the historical method " in the true sense of the term, — so fruitful in 
sociological enquiry as to constitute the distinguishing characteristio 
of this particular branch of science. 

To this social science of his vision Comte appHed the distinction 
he had already appHed to the preUminary sciences, between the 
static and the dynamic.^ The difference between " the fundamental 
study of the condition of existence of society " and " the study of 
the laws of its continuous movement " was so clear, in his judgment, 
that he could foresee the ultimate division of Sociology into Social 
Statics and Social Dynamics. But to attach, in the formative stage 
of the science, any very great importance to this convenient 
distribution of the subject matter would, he thought, be positively 
dangerous, since it would tend to obscure " the indispensable and 
permanent combination of the two points of view." 

Comte's attitude towards poUtical economy, as it was then taught 
was the natural result of his views as to the proper method of creating, 
a science of society.^ As part of the general movement of revolu- 
tionary thought, it had had a " provisional " function, and had 
rendered a transitory service in discrediting the industrial pohcy of 
the ancien regime after that policy had become a mere hindrance to 
progress. It had prepared the way for a sound historical analysis 
by calling attention to the importance of the economic side of Ufe. 
Its practical utihty, however, was by this time a thing of the past : 
and it was now an actual obstacle to social advance. Like the rest of 
the revolutionary philosophy, it now tended to prolong and systema- 
tise social anarchy. It led people to regard the absence of all 
regulating intervention in economic affairs on the part of society as 
a universal dogma ; and it met all the difficulties arising out of 
modern industrial changes, such as " the famous and immense 
economic question of the effect of machinery," with " the sterile 
aphorism of absolute industrial Hberty." And these practical con- 
sequences were but, in Comte's judgment, the consequences of its 
underlying scientific defects. From this sweeping condemnation 
Comte excepts Adam Smith, from whose example, according to him, ; 
the creators of the contemporary poUtical economy had completely! 
departed. But of the contemporary poUtical economy he declares 
that it was fundamentaUy metaphysical : its creators had no real 

> Ibid. pp. 318 seq. « Ihid. pp. 264-79, 



xiv INTRODUOTION 

understanding of tlie necessity and character of scientific observation. 
Its "inanity" was proved by the absence in economic literature of 
tbe real tests of all truly scientific conceptions, viz. continuity 
and fecundity. Its sterile disputes on the meaning of terms such 
as value, and utility, and 'production were like the worst debates of 
medieval schoolmen. And the very isolation of economics from 
other fields of social enquiry which economists had sought to justify 
was its decisive condemnation. 

" By the nature of the subject, in social studies the various 
general aspects are. quite necessarily, mutually inter-connected 
and inseparable in reason, so that the one aspect can only be 
adequately explained by the consideration of the others. It is 
certain that the economic and industrial analysis of society can- 
not be positively accomplished, if one leaves out all intellectual, 
moral and political analysis: and therefore this irrational 
separation furnishes an evident indication of the essentially 
metaphysical nature of the doctrines based upon it." 
Now Mill was immensely attracted, and for the time possessed, 
hj Comte's general conception of the Social Science or Sociology ; 
and in the concluding chapters of his Logic he took this over 
bodily, together with Comte's distinction between Social Statics and 
Social Dynamics.^ Just as Comte rejected the " metaphysical " 
political philosophy of France, so Mill made clear his opinion of the 
inadequacy of " the interest-philosophy of the Bentham school " 
in its appHcation to " the general theory of government." That 
philosophy, as he explained, was " founded on one comprehensive 
premiss : namely, that men's actions are always determined by 
their interests." But as this premiss was not true, what were really 
" the mere polemics of the day," and useful enough in that capacity, 
were quite erroneously *' presented as the scientific treatment of a 
great question." And quite in the spirit of Comte he added : 

" These philosophers would have appHed and did apply their 
principles with innumerable allowances. But it is not allowances 
that are wanted. There is little chance of making due amends 
in the superstructure of a theory for the want of sufficient breadth 
in its foundations. It is unphilosophical to construct a science out 
of a few of the agencies by which the phenomena are determined, 
and leave the rest to the routine of practice or the sagacity of 
conjecture. We ought either not to pretend to scientific forms or 

* Mill's Logic, book vi, chaps. 6, 10. 



we ought to study all the determining agencies equally, and 
endeavour, as far as can be done, to include all of them within 
the pale of the science ; else we shall infalHbly bestow a dispro- 
portionate attention upon those which our theory takes into 
account, while we misestimate the rest and probably underrate 
their importance." ^ 

How, then, about poHtical economy, which Comte had criticised 
in precisely the same spirit ? Mill was not at all disposed to throw 
overboard the Ricardian economics received from his father. In 
the first place, he maintained that a distinction could be drawn 
between the ^'general Science of Society" or ^^ general Sociology " 
and " the separate compartments of the science, each of which asserts 
its conclusions only conditionally, subject to the paramount control 
of the laws of the general science." The ground for this contention 
he sets forth thus : 

" Notwithstanding the universal consensus of the social 
phenomena, whereby nothing which takes place in any part of 
the operations of society is without its share of influence on every 
other part; and notwithstanding the paramount ascendency 
which the general state of civiHsation and social progress in any 
given society must hence exercise over the partial and subordinate 
phenomena ; it is not the less true that different species of social 
facts are in the main dependent, immediately and in the first 
resort, on different kinds of causes ; and therefore not only may 
with advantage, but must, be studied apart. . . . 

" There is,/or examfle, one large class of social phenomena of 
which the immediately determining causes are principally those 
which act through the desire of wealth ; and in which the 
psychological law mainly concerned is the familiar one that a 
greater gain is preferred to the smaller ... A science may be 
thus constructed which has received the name of Political 
Economy." 2 

In spite of the "for example" with which political economy 
is introduced, it is clear that the generalisation was formulated 
for the sake of that one subject, subject to a quahfication to be 
shortly mentioned. 

" I would not here undertake to decide what other hypo- 
thetical or abstract sciences, similar to PoHtical Economy, may 
admit of being carved out of the general body of the social science; 

^ Ibid. a. p. 472 (ed, 3). - Ibid. ii. pp. 480-1. 



XiUXiVWJ^OOXXVJXK 



what other portions of the social phenomena are in a sufficiently 
close and complete dependence, in the first resort, on a particular 
class of causes, to make it convenient to create a preliminary 
science of those causes ; postponing the consideration of the 
causes which act through them or in concurrence with them 
to a later period of the enquiry." i 

But Mill was not content with this " departmental" view, taken 
by itself : he proceeded to build two further " bridges " between his 
new and his old opinions. In an essay, written for the most part in 
1830, and pubhshed in the London and Westminster Review in 1836,2 
Mill had laid down with the utmost stringency that the only method 
appropriate to poUtical economy, i.e. to the Eicardian economics, 
was the a priori or deductive one. Between this and the method of 
Observation recommended by Comte it might have been thought 
that there was a sufficiently wide gulf. But Mill now proceeded to 
describe "the historical method," — whereby "general" Sociology 
was to be built up according to Comte and himself aUke, — in such 
terms as permitted him to designate even that a "Deductive Method," 
though indeed an ^^ Inverse Deductive Method." Thus the evident 
contrast in method was softened down into the difierence simply 
between " direct " and " inverse " deduction.^ 

The other bridge was to be a new science, or couple of sciences, 
still to be created. Mill explained at length in his Logic that 
there was need of what he denominated " Ethology " or a Science 
of Character.* Built upon this, there ought to be a Political 
Ethology, or " a theory of the causes which determine the type 
of character belonging to a people or to an age." ^ The bearing 
of Political Ethology on Political Economy is thus summarily 
indicated : 

" The most imperfect part of those branches of social enquiry 
which have been cultivated as separate sciences is the theory 
of the manner in which their conclusions are affected by ethological 
considerations. The omission is no defect in them as abstract 
or hypothetical sciences, but it vitiates them in their practical 
appHcation as branches of a comprehensive social science. In 
poUtical economy, for instance, empirical laws of human nature 
are tacitly assumed by English thinkers, which are calculated 
only for Great Britain and the United States. Among other 



Mill's Logic, ii. p. 486. 

Reprinted in Essays on some Unsettled Questions of PoUtical Economy {ISii), 

Logic, ii. pp. 476-7. * Ibid. ii. p. 441. * Ibid. ii. p. 486. 



INTRODUCTION xvii 

tilings an intensity of competition is constantly supposed, 
wliich, as a general mercantile fact, exists in no country in the 
world except those two. An EngUsh political economist . , . has 
seldom learned that it is possible that men, in conducting the 
business of selling their goods over the counter, should care 
more about their ease or their vanity than about their pecuniary 
gain." 1 

In spite once more of the introductory " for instance," it is clear 
that it is only poUtical economy that Mill has in his mind ; and it 
is primarily to remedy its " imperfections " that PoUtical Ethology 
is to be created. PoHtical Ethology, Hke Ethology itself, Mill 
conceived of as directly deductive in its character. 

It is no part of my task to criticise either Mill or Comte : all I 
am seeking to do is to make clear the intellectual relations between 
them. And whether, in particular, a Science of National Character 
is possible, and, if possible, on what sort of Hues it may be con- 
structed, I " would not here undertake to decide." I go on now 
to the purely biographical facts, — which need the more emphasis 
because they have dropt altogether out of the Autohiogra'phy, — 
that Mill took this project of creating an Ethology very seriously ; 
that " with parental fondness he cherished this subject for a con- 
siderable time " ; 2 and that he dropt it because he could not make 
anything of it.^ 

It was in this mood of recoil that he began to think of composing 
"a special treatise on poHtical economy, analogous to that of 
Adam Smith." Writing to Comte in April, 1844, he remarked that 
for him " this would only be the work of a few months." ^ Some 
particulars as to the actual period of composition are furnished by 
the Autobiography.^ 

" The Political Economy was far more rapidly executed 
than the Logic, or indeed than anything of importance which 
I had previously written. It was commenced in the autumn of 
1845, and was ready for the press before the end of 1847. In 
this period of little more than two years there was an interval 
of six months during which the work was laid aside, while 
I was writing articles in the Morning Chronicle . . . urging 
the formation of peasant properties on the waste lands oi 

^ Ibid. ii. p. 487. 2 Bain, pp. 78-9. 

^ Besides Bain's account, IMill's letters to Comte, printed by Levy-Bruhl 
pp. 260, 285, are of interest. 

* Levy-Bruhl, p. 308. ^ p. 235 (Pop. ed. p. 135). 



'^ INTRODUCTION 

Ireland. This was during tlie period of the FaminCj the winter 
of 1846-47." 

After what we have seen of his mental history, it is easy to 
anticipate that Mill would no longer be satisfied with the kind of 
treatment that economics had received at the hands of his father, 
or in subsequent years of McCulloch or Senior. The " principles " 
of abstract poHtical economy, as he had inherited them, he enter- 
tained no sort of doubt about. As has been well said, within that 
field " Mill speaks as one expounding an estabhshed system." i 
As late as 1844 he had reprinted in the thin volume entitled 
Some Unsettled Questions of Political Economy his old essay 
on Method, and had expressed his complete satisfaction, within 
its range, with the science as it was to be found " in the 
writings of its best teachers." 2 But he was bound to put this 
science into some sort of relation with that general Social Science 
or Philosophy, of which he had gained, or soHdified, his notion from 
the reading of Comte. Accordingly, he gave to his book the title : 
" Principles of PoHtical Economy, with some of their Afflications 
to Social Philosophy.'^ And he himself spoke of the work in later 
years in the following terms : 

" It was, from the first, continually cited and referred to as 
an authority, because it was not a book merely of abstract 
science, but also of application, and treated Political Economy 
not as a thing by itself, but as a fragment of a greater whole ; 
a branch of Social Philosophy, so interhnked with all the other 
branches, that its conclusions, even in its own peculiar province, 
are only true conditionally, subject to interference and counter- 
action from causes not directed within its scope : while to the 
character of a practical guide it has no pretension, apart from 
other classes of considerations." ^ 

It must be left to the reader to judge how far this " appHcation " 
was successful, — how far, indeed, the nature of the abstract science 
ent itself to apphcation. But the character of the undertaking 
vill be rendered clearer by noticing certain of its characteristics. 

Ethology, as we have seen, had receded from Mill's mind. But 

he thoughts which had given rise to the project have left their 

, races in the chapter on " Competition and Custom." * Here 

. 
' * Leslie Stephen, The English Utilitarians, iL 161. 

* Unsettled Questions, p. 149. 

* Autobiography, p. 236 (Pop. ed. p. 135)# 
■* Book ii. chap. 4. 



INTRODUCTION xiz 

Custom is placed side by side with Competition as the other agency 
determining the division of produce under the rule of private 
property. It is pointed out not only that Competition is a com- 
paratively modern phenomenon, so that, until recently, rents, for 
instance, were ruled by custom, but also that " even in the 
present state of intense competition " its influence is not so absolute 
as is often supposed : there are very often two prices in the same 
market. He asserts that 

" poHtical economists generally, and English pohtical econo- 
mists above others, are accustomed to lay almost exclusive 
stress upon the first of these agencies ; to exaggerate the effect 
of competition, and take into Uttle account the other and con- 
flicting principle. They are apt to express themselves as if 
they thought that competition actually does, in all cases, what- 
ever it can be shown to be the tendency of competition to do." 
The language in which he goes on to formulate an explanation and 
relative justification of their practice is of the utmost significance. 
" This is partly intelligible, if we consider that only through 
the principle of competition has political economy any pretension 
to the character of a science. So far as rents, profits, wages, 
prices, are determined by competition, laws may be assigned 
for them. Assume competition to be their exclusive regulator, 
and principles of broad generality and scientific precision may 
be laid down, according to which they will be regulated. The 
pohtical economist justly deems this his proper business : and 
as an abstract or hypothetical science, political economy cannot 
be required to do anything more." 

But, as the ascription to Competition of an unKmited sway is, as a 
matter of fact, " a great misconception of the actual cause of human 
affairs." 

'*to escape error, we ought, in applying the conclusions of 
political economy to the actual affairs of fife, to consider not 
only what will happen supposing the maximum of competition, 
but how far the result will be affected if competition falls short 
of the maximum." 

After this it might perhaps be expected that Mill would himself 
embark on a quantitative estimate of the extent of the divergence 
of the " laws " of " the science " from the facts of Hfe. But certainly 
no such attempt is made within the covers of his treatise — and he 
makes it clear that the application of his warning is to be left to 
the reader : 



XX INTRODUCTION 

" These observations must be received as a general correction, 
to be applied whenever relevant, whether expressly mentioned 
or not, to the conclusions contained in the subsequent portions 
. of this treatise. Our reasonings must, in general, proceed as 
if the known and natural effects of competition were actually 
produced by it." 

To discuss the conception of " science " and its relation to 
" law " which underlies such passages ; to compare it with that 
implied by Mill elsewhere ; or to enter into the question whether a 
systematic ascertainment and grouping of actual facts, guided by 
the ordinary rules of evidence, might not deserve to be called 
" scientific," even if it did not result in " law " — would take us 
too far afield. By confining, as he did, the term " science " to the 
abstract argument, and by leaving the determination of its relation 
to actual conditions to what he himself in another connexion calls 
" the sagacity of conjecture," Mill undoubtedly exercised a pro- 
found influence on the subsequent character of economic writing 
in England .^ 

Another result, in the Political Economy, of the preceding 
phase of Mill's social speculation, is to be found in the distinction 
between Statics and Dynamics which he now introduces into 
economics itself.^ In the Logic, as we have noticed, this 
distinction was applied, following Comte, only to the general 
Sociology which was to be created by " the historical method." 
But the general Sociology being indefinitely postponed, because 
, the Ethology which in Mill's judgment was its necessary foun- 
I dation was not forthcoming, it seemed proper to employ the 
distinction in the " preliminary " science, and to add in the 
Political Economy itself a " theory of motion " to the " theory of 
equilibrium.". Thus employed, however, the distinction becomes 
something very different from what Comte had intended. Almost 
' the whole of Mill's Book IV on the Progress of Society consists of a 
highly theoretical and abstract argument as to the effect on Prices, 
■ Rents, Profits, and Wages, within a competitive society of the present 
type, of the progress of population, capital, and the arts of production, 
^, ' in various combinations. Much of the substance of these arguments 
::?i ; was derived from Ricardo or his school ; and the whole discussion, 
"j even when Mill takes an independent line of his own, moves within 
the Ricardian atmosphere. This statement of fact does not neces- 
sarily imply condemnation. It is made only to clear Mill's use of 

^ 1 Book iv. chap. 1. 



INTRODUCTION xxi 

fche terms " static " and " dynamic " in his Political Economy from 
the ambiguity which his own previous use of the term in relation 
to general Sociology might cause to cHng to it. And we must 
except the last chapter of the Book, deaUng with "the Probable 
Futurity of the Working Classes," which is a prophecy of the 
ultimate victory of Co-operation, and has Uttle or no connexion 
with what goes before. 

And now we come finally to what Mill himself regarded as the 
distinguishing characteristic of his work ; and with it we reach the 
third of the influences that affected the movement of his mind after 
his early education. I refer, of course, to the distinction which 
Mill drew between the laws of the Production and those of the 
Distribution of wealth.^ With the formal statement in the 
Principles may be compared the passage in the Autobiography,^ 
where Mill gives an account of the influence of Mrs. Taylor 
(who became his wife in April, 1851) : 

" The purely scientific part of the Political Economy I did 
not learn from her ; but it was chiefly her influence that gave to 
the book that general tone by which it is distinguished from all 
. previous expositions of poHtical economy that had any pre- 
tension to being scientific. . . . This tone consisted chiefly in 
making the proper distinction between the laws of the Produc- 
tion of wealth — which are real laws of nature, dependent on 
the properties of objects — and the modes of its Distribution, 
which, subject to certain conditions, depend on human will. 
The common run of political economists confuse these together, 
under the designation of economic laws, which they deem 
incapable of being defeated or modified by human effort ; 
ascribing the same necessity to things dependent on the 
unchangeable conditions of our earthly existence, and to those 
which, being but the necessary consequences of particular 
social arrangements, are merely co-extensive with these : given 
certain institutions and customs, wages, profits, and rent 
will be determined by certain causes ; but this class of poHtical 
economists drop the indispensable presupposition, and argue 
that these causes must, by an inherent necessity, against which 
no human means can avail, determine the shares which fall, in 
the division of the produce, to labourers, capitahsts, and landlords. 

^ See the concluding paragraphs in the Preliminary Remarks, and booK ii, 
oLap. i. § 1. 

2 P. 24G (Pop. ed. p. 141). 



xxii INTRODUCTION 

The Principles of Political Economy yielded to none of its 
predecessors in aiming at the scientific appreciation of the action 
of these causes, under the conditions which they presuppose ; but 
it set the example of not treating those conditions as final. The 
economic generalizations which depend not on necessities of 
nature but on those combined with the existing arrangements of 
society, it deals with only as provisional, and as liable to be much 
altered by the progress of social improvement. I had indeed 
partially learnt this view of things from the thoughts awakened 
in me by the speculations of the St. Simonians ; but it was made 
a living principle pervading and animating the book by my wife's 
promptings." 

It would be interesting, had I space, to try to distinguish the 
various currents of thought which converged at this time upon 
Mill and his wife. They were both people of warm hearts and 
generous sympathies ; and the one most important fact about Mill's 
Principles, besides its being the work of the son of his father, 
is that it was published in the great year 1848. Mill's personal 
friendship with Carlyle and Maurice in England, his keen interest 
for years in St. Simonism and all the other early phases of Frencji 
" socialism," sufficiently disposed him, if he wore the old political 
economy at all, to wear it " with a difierence." I do not propose to 
add one more to the numerous arguments as to the validity of the 
distinction between the laws of Production and the modes of 
Distribution. But I should like to comment on one word which 
was constantly in Mill's mouth in this connexion — and that is the 
word " provisional " ; a word which, according to his own account, 
he had picked up from Austin.^ He used it twice in the letter to 
Comte announcing his intention to write an economic treatise : 

" I know your opinion of the political economy of the 

day : I have a better opinion of it than you have ; but, if I 

write anything on the subject, it will be never losing out of sight 

the purely provisional character of all its concrete conclusions ; 

and I shall take special pains to separate the general laws of 

Production, which are necessarily common to all industrial 

societies, from the principles of the Distribution and Exchange 

of wealth, which necessarily presuppose a particular state of 

' society, without implying that this state should, or even can, 

^ indefinitely continue. ... I believe that such a treatise might 

£ have, especially in England, great provisional utility, and that 

1 Autobiography, p. 234 (Pop. ed. p. 134). 



INTRODUCTION xxiii 

it will greatly help the positive spirit to make its way into 
political discussions." ^ 

Then followed a curious interchange of letters. Comte replied 
poHtely that he was glad to learn of Mill's project, and that he did 
not doubt that it would be very useful, by contributing to the 
spread of the positive spirit. 

"Although an economic analysis, properly so called, ought not, 
in my opinion, to be finally conceived of or undertaken apart 
from the general body of sociological analysis, both static and 
dynamic, yet I have never refused to recognise the provisional 
efficacy of this kind of present-day metaphysics." 2 
Mill wrote in return that he was pleased to get Comte's approba- 
tion, since he was afraid Comte might have thought his project 
" essentially anti-scientific " ; 

" and so it would really be if I did not take the greatest 
possible care to estabHsh the purely provisional character of 
any doctrine on industrial phenomena which leaves out of sight 
the general movement of humanity." 3 
Comte once more replied that he thought Mill's project a happy 
one. 

" When regarded as having the purely preliminary purpose 
and provisional office that are assigned to it by a general 
historical view, poHtical economy loses its principal dangers 
and may become very useful." * 

It is sufficiently apparent that the correspondents are at cross 
purposes. By " provisional " Comte means until a positive Sociology 
can he created ; Mill means so long as the present system of private 
property lasts. Until the present social system should be funda- 
mentally changed, Mill clearly regarded the Eicardian economics as 
so far applicable to existing conditions as to call for no substantial 
revision in method or conclusions. And by this attitude, — by 
deferring any breach with Eicardian poHtical economy to a time 
comparable in the minds of men less ardent than himself to the Greek 
Kalends, — he certainly strengthened its hold over many of his 
readers. 

Since Mill's time there has been a vast amount of economic 

^ April 3, 1844. Translated from the French text in L6vy-Bruhl, p. 309. 
2 May 1, 1844. Ibid. p. 314. The original French should be consulted. 
It is impossible in a free rendering to give all the nuances of the original. 
» June 6, 1844. Ibid. p. 322. * July 22, 1844. Ibid. p. 338. 



xxiv INTRODUCTION 

writing. The German Historical Sckool has come into existence, 
and has reached a high point of achievement in the treatise of 
Gustav SchmoUer. On the other hand, other bodies of theory- 
have made their appearance, quite as abstract as the Ricardian 
which they reject : and here the names of Jevonsand Menger stand 
out above the rest. An equally abstract Sociahst doctrinCj the 
creation largely of Marx, has meantime waxed and waned. But 
Mill's Princvples will long continue to be read and will deserve 
to be read. It represents an interesting phase in the intellectual 
history of the nineteenth century. But its merit is more than 
historical. It is still one of the most stimulating books that can 
be put into the hands of students, if they are cautioned at the outset 
against regarding it as necessarily final in all its parts. On some 
topics there is still, in my opinion, nothing better in the Enghsh 
language ; on others Mill's treatment* is still the best point of de- 
parture for further enquiry. Whatever its faults, few or many, it 
is a great treatise, conceived and executed on a lofty plane, and 
breathing a noble spirit. Mill — especially when we penetrate beneath 
the magisterial flow of his final text, as we are now enabled to do by 
the record in this edition of his varying moods — is a very human 
personality. The reader of to-day is not Hkely to come to him in too 
receptive a spirit ; and for a long time there will be much that even 
those who most differ from him will still be able to learn from his 
pages. 



It remains now to describe the character of the present edition. 
The text is that of the seventh edition (1871), the last revised 
by Mill; and it is hoped that the occasional but misleading 
misprints which had crept into it have now all been corrected. It 
has not seemed desirable to add anything in the way of editorial 
comment. But in the one case where Mill himself pubUcly abandoned 
an important doctrine of his Principles, — that of the Wages Fund 
— it has seemed proper to give an excerpt from his later writings in 
the Appendix. And the same plan has been pursued with regard 
to Mill's latest views on Socialism. I have also appended a sericd 
of references to the chief writers who have dealt with the main 
topics of Mill's treatise, especially those of a controversial nature, 
since his time. That I have altogether escaped the influence of 
personal bias in this selection I can hardly hope. If the references 
under any head should seem scanty or one-sided, it should be borne 



INTRODUCTION acxv 

in mind that they are intended to include only those outstanding 
works whose value is generally recognised by all serious economists, 
and that the choice is Hmited in the main to the books that are easily 
accessible to the English-reading pubhc. 

The characteristic feature, however, of this edition is the in- 
dication in the notes of all the significant changes or additions made 
by Mill in the course of the six editions revised by himself. The 
dates of these editions, after the first in 1848, were 1849, 1852, 
1857, 1862, 1865, and 1871. In every one of these Mill made note- 
worthy alterations. Eewriting, or the addition of whole sections 
or paragraphs, takes place chiefly in the earlier editions ; but even 
in the last, that of 1871, the " few verbal corrections " of which 
IVIill speaks in his Preface were sufiicient, in more passages than one, 
to give a different complexion to the argument. My attention was 
called to this interesting feature in the history of the Principles 
by Miss M. A. Ellis' article in the Economic Journal for June, 
1906 ; and it seemed to me that the interest of students would be 
aroused by a record of the variations. Accordingly I have com- 
pared the first and the seventh edition page by page and paragraph 
by paragraph ; and where any striking divergence has shown itself, 
I have looked up the earlier editions and ascertained the date of \U 
first appearance. This has proved an unexpectedly toilsome business, 
even with the assistance of the notes that Miss Ellis has been good 
enough to put at my disposal ; and I cannot feel quite sure that 
nothing has escaped my eye that ought to be noted. Mere changes 
of language for the sake of improving the style I have disregarded, 
though I have erred rather in the direction of including than of 
excluding every apparent indication of change of opinion or even of 
mood. All editorial notes are placed within square brackets ; and 
I have added, and marked in the same way, the dates of all Mill's 
own foot-notes subsequent to the first edition. As Mill's revision 
of the text, though considerable, was rather fragmentary, his time- 
references are occasionally a Httle bewildering : a " now " in his 
text may mean any time between 1848 and 1871. In every case 
where it seemed necessary to ascertain and to remind the reader of 
the time when a particular sentence was written, I have inserted 
the date in the text in square brackets. 

Mill's punctuation is not quite so preponderatingly grammatical 
as punctuation has since become. As in all the books of the 
middle of last century, it is also largely rhetorical. The printers had 
already, during the course of six editions, occasionally used their 



xxvi INTRODUCTION 

discretion and dropt out a misleading comma. I have ventured to 
carry the process just a little further, and to strike out a few rhetorical 
commas that seemed to interfere with the easy understanding of the 
text. The Index has been prepared by Miss M. A. Ellis. 

I must express my thanks to the proprietors of the Fortnightly 
Review for allowing me to make use of Mill's posthumous articles, 
and to Mr. Hugh Elliot for permitting me to refer to the Letters 
of Mill which he is now editing. 



W. J. ASHLEY. 



Edgbaston, 

September, 1909. 



PREFACE 

[1848] 



The appearance of a treatise like the present, on a subject on which 
so many works of merit already exist, may be thought to require 
some explanation. 

It might, perhaps, be sufficient to say, that no existing treatise 
on Pohtical Economy contains the latest improvements which have 
been made in the theory of the subject. Many new ideas, and new 
appHcations of ideas, have been eUcited by the discussions of the 
last few years, especially those on Currency, on Foreign Trade, and 
on the important topics connected more or less intimately with 
Colonization : and there seems reason that the field of Pohtical 
Economy should be re-surveyed in its whole extent, if only for the 
purpose of incorporating the results of these speculations, and 
bringing them into harmony with the principles previously laid 
down by the best thinkers on the subject. 

To supply, however, these deficiencies in former treatises bearing 
a similar title, is not the sole, or even the principal object which the 
author has in view. The design of the book is different from that 
of any treatise on Pohtical Economy which has been produced in 
England since the work of Adam Smith. 

The most characteristic quality of that work, and the one in i 
which it most differs from some others which have equalled or even i 
surpassed it as mere expositions of the general principles of the ' 
subject, is that it invariably associates the principles with their | 
appHcations. This of itself impHes a much wider range of ideas j 
and of topics than are included in Pohtical Economy, considered 
as a branch of abstract speculation. For practical purposes, 
Pohtical Economy is inseparably intertwined with many other 
branches of Social Philosophy. Except on matters of mere detail, 
there are perhaps no practical questions, even among those which 



xxviii PREFACE 

approach nearest to the character of purely economical questions, 
which admit of being decided on economical premises alone. And 
it is because Adam Smith never loses sight of this truth ; because, 
in his appHcations of Political Economy, he perpetually appeals to 
other and often far larger considerations than pure Pohtical Economy 
affords — that he gives that well-grounded feehng of command over 
the principles of the subject for purposes of practice, owing to which 
the Wealth of Nations, alone among treatises on Pohtical Economy 
has not only been popular with general readers, but has impressed 
itself strongly on the minds of men of the world and of legislators. 

It appears to the present writer that a work similar in its object 
and general conception to that of Adam Smith, but adapted to the 
more extended knowledge and improved ideas of the present age, 
is the kind of contribution which Pohtical Economy at present 
requires. The Wealth of Nations is in many parts obsolete,' 
and in all, imperfect. Pohtical Economy, properly so called, has*' 
grown up almost from infancy since the time of Adam Smith ; and 
the philosophy of society, from which practically that eminent 
thinker never separated his more pecuhar theme, though still in a 
very early stage of its progress, has advanced many steps beyond 
the point at which he left it. No attempt, however, has yet been 
made to combine his practical mode of treating his subject with 
the increased knowledge since acquired of its theory, or to exhibit 
the economical phenomena of society in the relation in which they 
stand to the best social ideas of the present time, as he did, with 
such admirable success, in reference to the philosophy of his century. 

Such is the idea which the writer of the present work has kept 
before him. To succeed even partially in realizing it, would be a 
sufficiently useful achievement, to induce him to incur willingly all 
the chances of failure. It is requisite, however, to add, that although 
his object is practical, and, as far as the nature of the subject admits, 
popular, he has not attempted to purchase either of those advantages 
by the sacrifice of strict scientific reasoning. Though he desires 
that his treatise should be more than a mere exposition of the 
abstract doctrines of Pohtical Economy, he is also desirous that 
such an exposition should be found in it.^ 

^ [The original Preface remained unchanged throughout the subsequent 
editions. But each of the later editions during the author's lifetime contained 
an addition peculiar to itself, either a new paragraph subjoined to the 
original preface or a further preface. These are reprinted in the present 
edition.] 



PREFACE xris 



[Addition to the Preface in the Second Edition, 1849] 

The additions and alterations in the present edition are generally 
of little moment ; but the increased importance which the Socialist 
controversy has assumed since this work was written has made it 
desirable to enlarge the chapter which treats of it ; the more so, as 
the objections therein stated to the specific schemes propounded 
by some SociaHsts have been erroneously understood as a general 
condemnation of all that is commonly included under that name. 
A full appreciation of Sociahsm, and of the questions which it raises, 
can only be advantageously attempted in a separate work. 



Preface to the Third Edition [July, 1852] 

The present edition has been revised throughout, and several 
chapters either materially added to or entirely re-cast. Among 
these may be mentioned that on the " Means of abolishing Cottier 
Tenantry," the suggestions contained in which had reference 
exclusively to Ireland, and to Ireland in a condition which has been 
much modified by subsequent events. An addition has been made 
to the theory of International Values laid down in the eighteenth 
chapter of the Third Book. 

The chapter on Property has been almost entirely re-written. 
I was far from intending that the statement which it contained of the 
objections to the best known Socialist schemes should be under- 
stood as a condemnation of Sociahsm, regarded as an ultimate 
result of human progress. The only objection to which any great 
importance will be found to be attached in the present edition is 
the unprepared state of mankind in general, and of the labouring 
classes in particular ; their extreme unfitness at present for any 
order of things, which would make any considerable demand on 
either their intellect or their virtue. It appears to me that the 
great end of social improvement should be to fit mankind by culti- 
vation for a state of society combining the greatest personal freedom 
with that just distribution of the fruits of labour which the present 
laws of property do not profess to aim at. Whether, when this 
state of mental and moral cultivation shall be attained, individual 
property in some form (though a form very remote from the present) 
or community of ownership in the instruments of production and 



XXX 



PREFACE 



a regulated division of the produce will afford the circumstances 
most favourable to happiness, and best calculated to bring human 
nature to its greatest perfection, is a question which must be left, 
as it safely may, to the people of that time to decide. Those of the 
present are not competent to decide it. 

The chapter on the *' Futurity of the Labouring Classes " has 
been enriched with the results of the experience afforded, since this 
work was first published, by the co-operative associations in France. 
That important experience shows that the time is ripe for a larger 
and more rapid extension of association among labourers than 
could have been successfully attempted before the calumniated 
democratic movements in Europe, which, though for the present 
put down by the pressure of brute force, have scattered widely the 
seeds of future improvement. I have endeavoured to designate 
more clearly the tendency of the social transformation, of which 
these associations are the initial step ; and at the same time to 
disconnect the co-operative cause from the exaggerated or altogether 
mistaken declamations against competition, so largely indulged in 
by its supporters. 

[Addition to the Preface in the Fourth Edition, 1857] 

The present edition (the fourth) has been revised throughout, 
and some additional explanations inserted where they appeared to 
be necessary. The chapters to which most has been added are 
those on the Influence of Credit on Prices, and on the Regulation 
of a Convertible Paper Currency. 

[Addition to the Preface in the Fifth Edition, 1862] 

The present fifth edition has been revised throughout, and the 
facts, on several subjects, brought down to a later date than in the 
former editions. Additional arguments and illustrations have been 
inserted where they seemed necessary, but not in general at any 
considerable length. 

[Addition to the Preface in the Sixth Edition, 1865] 

The present, like all previous editions, has been revised through- 
out, and additional explanations, or answers to new objections, 
have been inserted where they seemed necessary ; but not, in 



PREFACE xxxi 

general, to any considerable length. The chapter in which the 
greatest addition has been made is that on the Rate of Interest ; 
and for most of the new matter there introduced, as well as for 
many minor improvements, I am indebted to the suggestions and 
criticisms of my friend Professor Cairnes, one of the most scientific 
of Uving political economists. 

[Addition to the Preface in " The People's Edition," 1865] 

The present edition is an exact transcript from the sixth, except 
that all extracts and most phrases in foreign languages have been 
translated into English, and a very small number of quotations, or 
parts of quotations, which appeared superfluous, have been struck 
out.^ A reprint of an old controversy with the Quarterly Review 
on the condition of landed property in France, which had been 
subjoined as an Appendix, has been dispensed with.^ 

Preface to the Seventh Edition [1871] * 

The present edition, with the exception of a few verbal correc- 
tions,3 corresponds exactly with the last Library Edition and with 
the People's Edition. Since the pubUcation of these, there has been 
some instructive discussion on the theory of Demand and Supply, 
and on the influence of Strikes and Trades Unions on wages, by 
which additional light has been thrown on these subjects ; but the 
results, in the author's opinion, are not yet ripe for incorporation 
in a general treatise on PoHtical Economy.f For an analogous 
reason, all notice of the alteration made in the Land Laws of Ireland 
by the recent Act, is deferred until experience shall have had time to 
pronounce on the operation of that well-meant attempt to deal with 
the greatest practical evil in the economic institutions of that country. 

* [The English translations in the People's edition have similarly been 
eubstituted for the originals in this, Students', edition, but none of the quotations 
have been omitted.] 

2 [This example has been followed in the present, Students', edition.] 

* The last in the author's hfetime; [and to the subsequent eighth and 
ninth Library . editions]. 

' [See, however, pp. 934, 936.] 

■f The present state of the discussion may be leamt from a review (by 
the author) of Mr. Thornton's work " On Labour," in the Fortnightly 
Review of May and June, 1869, and from Mr. Thornton's reply to that 
review in the second edition of his very instructive book. [See Appendix O. 
The Wages Fund Doctrine.] 



1 



CONTENTS 



PAGE 

Introduction v 



BOOK I 

PRODUCTION 

Q Chapter I. Of the Requisites of Production 

1. Requisites of production, what , 22 

2. The function of labour defined 23 

3. Does nature contribute more to the efficacy of labour in 

some occupations than in others ? 25 

4. Some natural agents Umited, others practically unlimited, 

in quantity 26 

Chapter II. Of Labour as an Agent of Production 

1. Labour employed either directly about the thing pro- 

duced, or in operations preparatory to its production . 29 

2. Labour employed in producing subsistence for subsequent 

labour 31 

3. — in producing materials 33 

4. — or implements 34 

5. — in the protection of labour 36 

6. — in the transport and distribution of the produce . . 37 

7. Labour which relates to human beings 39 

8. Labour of invention and discovery 40 

^. Labour agricultural, manufacturing, and commercial . 42 



sxxiv CONTENTS 

PAGK 

Chapter III. Of TJufroductive Labour 

§ 1. Labour does not produce objects, but utilities ... 44 

2. — which are of three kinds 45 

3. Productive labour is that which produces utilities fixed 

and embodied in material objects 47 

4. All other labour, however useful, is classed as unpro- 

ductive . 49 

5. Productive and Unproductive Consumption .... 51 

6. Labour for the supply of Productive Consumption, and 

labour for the supply of Unproductive Consumption. 52 



D Chapter IV. Of Capital 

§ 1. Capital is wealth appropriated to reproductive employ- 
ment 54 

2. More capital devoted to production than actually em- 

ployed in it 56 

3. Examination of some cases illustrative of the idea of 

Capital . 59 



OChapter V. Fundamental Propositions respecting Capital 

I 1. Industry is limited by Capital 63 

2. — but does not always come up to that Hmit .... 65 

3. Increase of capital gives increased employment to labour, 

without assignable bounds 66 

4. Capital is the result of saving 68 

5. All capital is consumed 70 

6. Capital is kept up, not by preservation, but by per- 

petual reproduction 73 

7. Why countries recover rapidly from a state of devastation 74 

8. Effects of defraying government expenditure by loans . 76 

9. Demand for commodities is not demand for labour . . 79 
10. Fallacy respecting Taxation 88 



Chapter VI. Of Circulating and Fixed Capital 

§ 1. Fixed and Circulating Capital, what 91 

2. Increase of fixed capital when at the expense of circu- 

lating, might be detrimental to the labourers ... 93 

3. — but this seldom if ever occurs 97 



\/' 



CONTENTS X2CXV 

PAGB 

Chapter VII. On what depends the degree of Productiveness 

of Productive Agents 

§ 1. Land, labour, and capital, are of different productiveness 

at different times and places 101 

2. Causes of superior productiveness. Natural advan- 

tages 102 

3. — greater energy of labour 104 

4. — superior skill and knowledge 107 

5. — superiority of intelligence and trustworthiness in the 

community generally 108 

6. — superior security 113 

Chapter VIII. Of Co-operation, or the Combination of Labour 

§ 1. Combination of Labour a principal cause of superior 

productiveness 116 

2. Effects of separation of employments analyzed . . . 118 

3. Combination of labour between town and country . . 120 

4. The higher degrees of the division of labour .... 122 

5. Analysis of its advantages 124 

6. Limitations of the division of labour 130 



Chapter IX. Of Production on a Large, and Production on a 

Small Scale 

§ 1. Advantages of the large system of production in manu- 
factures 132 

2. Advantages and disadvantages of the joint-stock 

principle 137 

3. Conditions necessary for the large system of produc- 

tion 142 

4. Large and small farming compared 144 



Chapter X. Of the Law of the Increase of Labour 

§ 1. The law of the increase of production depends on those 

of three elements, Labour, Capital, and Land . . . 155 

2. The Law of Population 156 

3. By what checks the increase of population is practically 

limited 158 



xxxvi CONTENTS 

PAGB 

DChapter XI. Of the Law of the Increase of Capital 

§ 1. Means and motives to saving, on what dependent . . 163 

2. Causes of diversity in the efiective strength of the desire 

of accumulation 165 

3. Examples of deficiency in the strength of this desire . 167 

4. Exemplification of its excess 173 



Chapter XII. Of the Law of the Increase of Production from 

Land 

§ 1. The limited quantity and limited productiveness of land, 

the real limits to production 176 

2. The law of production from the soil, a law of diminishing 

return in proportion to the increased application of 
labour and capital 176 

3. Antagonist principle to the law of diminishing return ; 

the progress of improvements in production . . . 181 



Chapter XIII. Consequences of the foregoing Laws 

§ 1. Kemedies when the limit to production is the weakness 

of the principle of accumulation 189 

2. Necessity of restraining population not confined to a state 

of inequality of property 190 

3. — nor superseded by free trade in food 193 

4. — nor in general by emigration 197 



BOOK II 

DISTRIBUTION 

Chapter I. Of Property 

§ 1. Introductory remarks . . . .199 

2. Statement of the question 201 

3. Examination of Communism 204 

4. — of St. Simonism and Fourierism . . . . . . .211 



CONTENTS xxxvli 

PAQB 

Chapter II. The same subject continued 

1. The institution of property implies freedom of acquisition 

by contract •. . . 218 

2. — the vahdity of prescription 220 

3. — the power of bequest, but not the right of inheritance. 

Question of inheritance examined 221 

4. Should the right of bequest be limited, and how ? . . 226 

5. Grounds of property in land, different from those of pro- 

perty in moveables 229 

6. — only valid on certain conditions, which are not always 

realized. The limitations considered 231 

7. Bights of property in abuses 235 



Chapter III. Of the Classes among whom the Produce is 

distributed 

1. The produce sometimes shared among three classes . . 238 

2. — sometimes belongs undividedly to one 238 

3. — sometimes divided between two . 240 



Chapter IV. Of Com'petition and Custom 

§ 1, Competition not the sole regulator of the division of the 

produce 242 

2. Influence of custom on rents, and on the tenure of land . 243 

3. Influence of custom on prices 245 



Chapter V. Of Slavery 

§ 1. Slavery considered in relation to the slaves . , . . 249 

2. — in relation to production 250 

3. Emancipation considered in relation to the interest of the 

slave-owners 253 



Chapter VI. Of Peasant Proprietors 

§ 1. Difference between English and Continental opinions 

respecting peasant properties 256 

2. Evidence respecting peasant properties in Switzerland . 258 

3. — in Norway 263 

4. — in Germany 266 



XXXVIU 



CONTENTS 



- PAOH 

§ 5. Evidence respecting peasant properties in Belgium . 271 

6. — in the Channel Islands 276 

7. — in France 277 



Chapter VII. Continuation of the same subject 

1. Influence of peasant properties in stimulating industry . 283 

2. — in training intelligence 285 

3. — in promoting forethought and self-control .... 286 

4. Their effect on population . 287 

5. — on the subdivision of land . 296 



Chapter VIII. Of Metayers 

§ 1. Nature of the metayer system, and its varieties . . , 302 

2. Its advantages and inconveniences 304 

3. Evidence concerning its effects in different countries . 306 

4. Is its abolition desirable ? 315 



Chapter IX. Of Cottiers 

§ 1. Nature and operation of cottier tenure 318 

2. In an overpeopled country its necessary consequence is 

nominal rents 321 

3. — which are inconsistent with industry, frugality, or 

restraint on population 323 

4. Ryot tenancy of India 324 



Chapter X. Means of aholishing Cottier Tenancy 

§ 1. Irish cottiers should be converted into peasant proprietors 329 
2. Present state of this question . 337 



^SChapter XI. Of Wages 

1. Wages depend on the demand and supply of labour— in 

other words, on population and capital 343 

2. Examination of some popular opinions respecting wages 344 



CONTENTS xxxii 

PAOB 

§ 8. Certain rare circumstances excepted, high wages imply 

restraints on population 349 

4. — which are in some cases legal 353 

5. — in others the effect of particular customs .... 355 

6. Due restriction of population the only safeguard of a 

labouring class 357 

Chapter XII. Of Popular Remedies for Low Wages 

§ 1. A legal or customary minimum of wages, with a guarantee 

of employment 361 

2. — would require as a condition, legal measures for re- 

pression of population 363 

3. Allowances in aid of wages 366 

4. The Allotment System 368 

Chapter XIII. Remedies for Low Wages further considered 

§ 1. Pernicious direction of pubHc opinion on the subject of 

population 373 

2. Grounds for expecting improvement 376 

3. Twofold means of elevating the habits of the labouring 

people : by education 380 

4. — and by large measures of immediate relief, through 

foreign and home colonization 381 

Chapter XIV. Of the Differences of Wages in different 

Employments 

§ 1. Differences of wages arising from different degrees of 

attractiveness in different employments 385 

2. Differences arising from natural monopolies .... 390 

3. Effect on wages of a class of subsidized competitors . . 394 

4. — of the competition of persons with independent means 

of support 397 

5. Wages of women, why lower than those of men . . . 400 

6. Differences of wages arising from restrictive laws, and 

from combinations 401 

7. Cases in which wages are fixed by custom 403 

<^ Chapter XV. Of Pro-fits 

§ 1. Profits resolvable into three parts ; interest, insurance, 

and wages of superintendence 405 L- 



xl CONTENTS 

PAGE 

§ 2. The minimum of profits ; and the variations to which it is 

Uable . 407 

3. Differences of profits arising from the nature of*the parti- 

cular employment 409 

4. General tendency of profits to an equality . . . .410 

5. Profits do not depend on prices, nor on purchase and sale 416 

6. The advances of the capitalist consist ultimately in wages 

of labour 417 

7. The rate of profit depends on the Cost of Labour . ^ , 418 



O Chapter XVI. Of Rent 

1. Rent the effect of a natural monopoly 422 

2. No land can pay rent except land of such quahty or situ- 

ation as exists in less quantity than the demand . . 423 

3. The rent of land consists of the excess of its return above 

the return to the worst land in cultivation .... 425 

4. — or to the capital employed in the least advantageous 

circumstances 426 

5. Is payment for capital sunk in the soil, rent, or profit ? . 429 

6. Rent does not enter into the cost of production of agri- 

cultural produce . . » , 433 



BOOK III 

EXCHANGE 

OChapter I. Of Value 

1. Preliminary remarks 435 

2. Definitions of Value in Use, Exchange Value, and Price 436 

3. What is meant by general purchasing power .... 437 

4. Value a relative term. A general rise or fall of values a 

contradiction 439 

5. The Laws of Value, how modified in their application to 

retail transactions 440 



CONTENTS xli 

FAQS 

(^Chapter II. Of Demand and Supply, in their relation to 

Value 

§ 1. Two conditions of Value : Utility, and Difficulty of At- 
tainment 442 

2. Three kinds of Difficulty of Attainment 444 

3. Commodities which are absolutely limited in quantity. 445 

4. Law of their value, the Equation of Demand and Supply 446 

5. Miscellaneous cases falling under this, law .... 448 



Chapter III. Of Cost of Production, in its relation to Value 

§ 1. Commodities which are susceptible of indefinite multi- 
plication without increase of cost. Law of their Value, 

Cost of Production 451 

2. — operating through potential, but not actual alterations 

of supply 453 



O Chapter IV. Ultimate Analysis of Cost of Production 

§ L Principal element in Cost of Production — Quantity of 

Labour 457 

2. Wages not an element in Cost of Production . . . 459 

3. — except in so far as they vary from employment to 

employment 460 

4. Profits an element in Cost of Production, in so far as they 

vary from employment to employment 461 

5. — or are spread over unequal lengths of time . . . 463 

6. Occasional elements in Cost of Production : taxes, and 

scarcity value of materials 466 



O Chapter V. Of Rent, in its relation to Value 

§ 1. Commodities which are susceptible of indefinite multipli- 
cation, but not without increase of cost. Law of their 
Value, Cost of Production in the most unfavourable 
existing circumstances 469 

2. Such commodities, when produced in circumstances more 

favourable, yield a rent equal to the difference of cost. 471 

3. Kent of mines and fisheries, and ground-rent of build- 

ings 473 

4. Cases of extra profit analogous to rent . , , , . 476 



xlii CONTENTS 

PAQB 

O Chapter VI. Summary of the Theory of Value 

§ 1. Tlie theory of Value recapitulated in a series of proposi- 
tions .... 478 

2. How modified by the case of labourers cultivating for 

subsistence 480 

3. — by the case of slave labour 482 

<B Chapter VII. Of Money 

§ 1. Purposes of a Circulating Medium 483 

2. Gold and Silver, why fitted for those purposes . . . 484 

3. Money a mere contrivance for facilitating exchanges, 

which does not affect the laws of Value 487 

Chapter VIII. Of the Value of Moneys as dependent on 
Demand and Supply 

§ 1. Value of Money, an ambiguous expression .... 489 

2. The value, of money depends, cseteris paribus, on its 

quantity 490 

3. — together with the rapidity of circulation .... 493 

4. Explanations and limitations of this principle . . . 495 

Chapter IX. Of the Value of Money j as dependent on Cost 

of Production 

§ 1. The value of money, in a state of freedom, conforms to the 

value of the bullion contained in it 499 

2. — which is determined by the cost of production . . 501 

3. This law, how related to the principle laid down in the 

preceding chapter 503 

Chapter X. Of a Double Standard, and Subsidiary Coins 

§ 1. Objections to a double standard . . . .- . . . 507 
2. The use of the two metals as money, how obtained with- 
out making both of them legal tender 508 

Chapter XI. Of Credit, as a Substitute for Money 

§ 1. Credit not a creation but a transfer of the means of 

production 511 



CONTENTS xliii 

PAGB 

§ 2. In what manner it assists production 512 

3. Function of credit in economizing the use of money . 514 

4. Bills of exchange 515 

5. Promissory notes 519 

6. Deposits and cheques 520 



Chapter XII. Influence of Credit on Prices 

§ 1. The influence of bank notes, bills, and cheques, on price, 

a part of the influence of Credit 523 

2. Credit a purchasing power similar to money .... 524 

3. Effects of great extensions and contractions of credit. 

Phenomena of a commercial crisis analyzed . . . 525 

4. Bills a more powerful instrument for acting on prices 

than book credits, and bank notes than bills . . . 529 

5. — the distinction of little practical importance . . . 532 

6. Cheques an instrument for acting on prices, equally 

powerful with bank notes 536 

7. Are bank notes money ? 538 

8. No generic distinction between bank notes and other 

forms of credit 540 



Chapter XIII. Of an Inconvertible Pamper Currency 

§ 1. The value of an inconvertible paper, depending on its 

quantity, is a matter of arbitrary regulation . . . 542 

2. If regulated by the price of bulUon, an inconvertible 

currency might be safe, but not expedient .... 544 

3. Examination of the doctrine that an inconvertible cur- 

rency is safe if representing actual property . . . 546 

4. Examination of the doctrine that an increase of the 

currency promotes industry ........ 550 

5. Depreciation of currency a tax on the community, and 

a fraud on creditors 551 

6. Examination of some pleas for committing' this fraud . 552 



o Chapter XIV. Of Excess of Supply 

§ 1. Can there be an oversupply of commodities generally ? . 556 
2. The supply of commodities in general cannot exceed the 

power of purchase 557 



xliT CONTENTS 

PAGE 

§ 3. The supply of commodities in general never does exceed 

the inclination to consume 558 

4. Origin and explanation of the notion of general oversupply 560 

Chaptee XV. . Of a Measure of Value 

§ 1. A measure of Exchange Value, in what sense possible . 564 
2. A measure of Cost of Production 566 

Chapter XVI. Of some Peculiar Cases of Value 

§ 1. Values of commodities which have a joint cost of pro- 
duction 569 

2. Values of the different kinds of agricultural produce . 571 

O Chapter XVII. Of International Trade 

§ 1. Cost of production not the regulator of international 

values 574 

2. Interchange of commodities between distant places, 

determined by differences not in their absolute, but in 
their comparative cost of production . . . . . 576 

3. The direct benefits of commerce consist in increased 

efficiency of the productive powers of the world . . 578 

4. — not in a vent for exports, nor in the gains of merchants 578 

5. Indirect benefits of commerce, economical and moral ; 

still greater than the direct 581 

O Chapter XVIII. Of International Values 

§ 1. The values of imported commodities depend on the terms 

of international interchange 583 

2. — which depend on the Equation of International De- 

mand 584 

3. Influence of cost of carriage on international values . . 588 

4. The law of values which holds between two countries and 

two commodities, holds of any greater number . . 590 

5. Effect of improvements in production on international 

values 593 

6. The preceding theory not complete . . . . . . 596 



CONTENTS xlv 

PAGE 

§ 7. International values depend not solely on the quantities 
demanded, but also on the means of production 
available in each country for the supply of foreign 
markets 597 

8. The practical result little affected by this additional 

element 601 

9. The cost to a country of its imports, on what circum- 

stances dependent 604 



Chapter XIX. Of Money, considered as an Imported 

Commodity 

§ 1. Money imported in two modes ; as a commodity, and as 

a medium of exchange 607 

2. As a commodity, it obeys the same laws of value as other 

imported commodities 608 

3. Its value does not depend exclusively on its cost of pro- 

duction at the mines 610 



Chapter XX. Of the Foreign Exchanges 

§ 1. Purposes for which money passes from country to country 

as a medium of exchange 612 

2. Mode of adjusting international payments through the 

exchanges 612 

3. Distinction between variations in the exchanges which 

are self-adjusting, and those which can only be rectified 
through prices 617 



Chapter XXI. Of the Distribution of the Precious Metals 
through the Commercial World 

§ 1. The substitution of money for barter makes no difference 
in exports and imports, nor in the law of international 
values 619 

2. The preceding theorem further illustrated . . . .622 

3. The precious metals, as money, are of the same value, and 

distribute themselves according to the same law, with 

the precious metals as a commodity 626 

4. International payments of a non- commercial char- 

acter 627 



xlvi CONTENTS 

PAOB 

Chapter XXII. Influence of the Currency on the Exchanges 

and on Foreign Trade 

§ 1. Variations in tlie exchange wMch originate in the currency 629 

2. Effect of a sudden increase of a metallic currency, or of 

the sudden creation of bank notes or other substitutes 

for money 630 

3. Effect of the increase of an inconvertible paper cur- 

rency. Real and nominal exchange 634 

Chapter XXIII. Of the Rate of Interest 

§ 1. The rate of interest depends on the demand and supply 

of loans 637 

2. Circumstances which determine the permanent demand 

and supply of loans 638 

3. Circumstances which determine the fluctuations . . . 641 

4. The rate of interest, how far and in what sense connected 

with the value of money 644 

5. The rate of interest determines the price of land and of 

securities 649 

Chapter XXIV. Of the Regulation of a Convertible Paper 

Currency 

§ 1. Two contrary theories respecting the influence of bank 

issues 651 

2. Examination of each 653 

3. Eeasons for thinking that the Currency Act of 1844 pro- 

duces a part of the beneficial effect intended by it . . 656 

4. — but produces mischiefs more than equivalent . . . 662 

5. Should the issue of bank notes be confined to a single 

establishment ? 674 

6. Should the holders of notes be protected in any peculiar 

manner against failure of payment ? 676 

Chapter XXV. Of the Competition of Different Countries in 

the same Market 

§ 1. Causes which enable one country to undersell another . 678 

2. Low wages one of those causes 680 

3. — when peculiar to certain branches of industry . . 682 

4. — but not when common to all 684 

5. Some anomalous cases of trading communities examined 685 



CONTENTS xlvii 

PAG5 

Chapter XXVI. Of Distribution, as affected by Exchange 

§ 1. Exchange and Money make no difference in the law of 

wages 688 

2. — in the law of rent 690 

3. — nor in the law of profits . , » 691 



BOOK IV 

INFLUENCE OF THE PROGRESS OF SOCIETY ON 
PRODUCTION AND DISTRIBUTION 



O Chapter I. General Characteristics of a Progressive State of 

Wealth 

§ 1. Introductory remarks 695 

2. Tendency of the progress of society towards increased 
command over the powers of nature ; ingreased secu- 
rity ; and increased capacity of co-operation , . . 69G 



Chapter II. Influence of the Progress of Industry and 
Population on Values and Prices 

§ 1. Tendency to a decline of the value and cost of production 

of all commodities 700 

2. — except the products of agriculture and mining, which 

have a tendency to rise 701 

3. — that tendency from time to time counteracted by 

improvements in production 703 

4. Effect of the progress of society in moderating fluctua- 

tions of value 704 

5. Examination of the influence of speculators, and in par- 

ticular of corn dealers 706 



Chapter III. Influence of the Progress of Industry and 
Population, on Rents, Profits, and Wages 

§ 1. First case ; population increasing, capital stationary , 710 
2. Second case ; capital increasing, population stationary . 713 



xlviii CONTENTS 

PAGE 

§ 3. Third case ; population and capital increasing equally, 

tlie arts of production stationary . . . . . . 714 

4. Fourth case ; the arts of production progressive, capital 

and population stationary 715 

5. Fifth case ; all the three elements progressive . . . 720 

O Chapter IV. Of the Tendency of Profits to a Minimum 

§ 1. Doctrine of Adam Smith on the competition of capital . 725 

2. Doctrine of Mr. Wakefield respecting the field of employ- 

ment 727 

3. What determines the minimum rate of profit .... 728 

4. In opulent countries, profits habitually near to the mini- 

mum 731 

5. — prevented from reaching it by commercial revulsions . 733 

6. — by improvements in production 735 

7. — by the importation of cheap necessaries and instru- 

ments ... 736 

8. — by the emigration of capital 738 

oChapter V. Consequences of the Tendency of Profits to a 

Minimum 

§ 1. Abstraction of capital not necessarily a national loss . 740 
2. In opulent countries, the extension of machinery not 

detrimental but beneficial to labourers 742 



o Chapter VI. Of the Stationary State 

1. Stationary state of wealth and population, dreaded and 

deprecated by writers 746 

2. — but not in itself undesirable 748 



Chapter VII. On the Probable Futurity of the Labouring 

Classes 

§ 1. The theory of dependence and protection no longer appli- 
cable to the condition of modern society .... 752 

2. The future well-being of the labouring classes principally 

dependent on their own mental cultivation .... 757 

3. Probable effects of improved intelHgence in causing a 

better adjustment of population — Would be promoted 

by the social independence of women 759 



CONTENTS xlix 

PAGE 

4. Tendency of society towards the disuse of the relation of 

hiring and service 760 

5. Examples of the association of labourers with capitalists 764 

6. — of the association of labourers among themselves . 772 

7. Competition not pernicious, but useful and indispensable. 792 



BOOK V 

ON THE INFLUENCE OF GOVERNMENT 

^Chapter I. Of the Functions of Government in General 

§ 1. Necessary and optional functions of government distin- 
guished 795 

2. Multifarious character of the necessary functions of 

government 796 

3. Division of the subject 80(? 

Chapter II. Of the General Principles of Taxation 

§ 1. Four fundamental rules of taxation 802 

2. Grounds of the principle of EquaHty of Taxation . . 804 

3. Should the same percentage be levied on all amounts of 

income ? 806 

4. Should the same percentage be levied on perpetual and 

on terminable incomes ? 810 

5. The increase of the rent of land from natural causes a fit 

subject of pecuhar taxation 817 

6. A land tax, in some cases, not taxation, but a rent-charge 

in favour of the public 820 

7. Taxes falling on capital, not necessarily objectionable . 821 

Chapter III. Of Direct Taxes 

§ 1. Direct taxes either on income or on expenditure . . . 823 

2. Taxes on rent 823 

3. — on profits 824 

4. — on wages 827 



1 CONTENTS 

PAGE 

§ 5. An Income Tax .- . , . . 829 

6. A House Tax 832 



Chapter IV. Of Taxes on Commodities 

1. A tax on all commodities would fall on profits . . . 837 

2. Taxes on particular commodities fall on the consumer . 838 

3. Peculiar effects of taxes on necessaries 839 

4. — how modified by the tendency of profits to a minimum 842 

5. Effects of discriminating duties 847 

6. Effects produced on international exchange by duties on 

exports and on imports 850 



Chapter V. Of some other Taxes 

§ 1. Taxes on contracts 857 

2. Taxes on communication 860 

3. Law Taxes 861 

4. Modes of taxation for local purposes 862 



Chapter "VT. Comparison between Direct and Indirect 

Taxation 

1. Arguments for and against direct taxation . . . , 864 

2. What forms of indirect taxation most eligible . . . 868 

3. Practical rules for indirect taxation 870 



C Chapter VII. Of a N ational Debt 

§ 1. Is it desirable to defray extraordinary public expenses 

by loans? 873 

2. Not desirable to redeem a national debt by a general 

contribution 876 

3. In what cases desirable to maintain a surplus revenue for 

the redemption of debt 878 



Chapter VIII. Of the Ordinary Functions of Government^ 
considered as to their Economical Effects 

§ 1. Effects of imperfect security of person and property . 881 
2. Effects of over-taxation 883 



CONTENTS li 

PAGE 



§ 3. Effects of imperfection in the system of the laws, and in 

the administration of justice 884 



Chapter IX. The same subject continued 

§ 1. Laws of Inheritance 889 

2. Law and Custom of Primogeniture 891 

3. Entails 894 

• 4. Law of compulsory equal division of inheritances . . 896 

5. Laws of Partnership 897 

6. Partnership with Hmited Uability. Chartered Companies 899 

7. Partnerships in commandite 903 

8. Laws relating to Insolvency 909 



Chapter X, Of Interferences of Government grounded on 
Erroneous Theories 

§ 1. Doctrine of Protection to Native Industry * . . , 916 

2. Usury Laws 926 

3. Attempts to regulate the prices of commodities . . .930 

4. MonopoHes 932 

5. Laws against Combination of Workmen 933 

6. Restraints on opinion or on its publication .... 939 



Chapter XL Of the Grounds and Limits of the Laisser-faire 
or Non-interference Principle 

§ 1. Governmental intervention distinguished into authori- 
tative and unauthoritative 941 

2. Objections to government intervention — the compulsory 

character of the intervention itself, or of the levy of 
funds to support it 942 

3. — increase of the power and influence of government . 944 

4. — increase of the occupations and responsibiUties of 

government 945 

5. — superior efficacy of private agency, owing to stronger 

interest in the work 947 

6. — importance of cultivating habits of collective action 

in the people 948 



m CONTENTS 

, PAGB 

§ 7. Laisser-faire tlie general rule 950 

8. — but liable to large exceptions. Cases in which the 

consumer is an incompetent judge of the commodity. 
Education 953„ 

9. Case of persons exercising power over others. Protec- 

tion of children and young persons ; of the lower 
animals. Case of women not analogous .... 956 

10. Case of contracts in perpetuity 959 

11. Cases of delegated management 960 

12. Cases in which public intervention may be necessary to 

give effect to the wishes of the persons interested. 
Examples : hours of labour ; disposal of colonial lands 963 

13. Case of acts done for the benefit of others than the 

persons concerned. Poor Laws 966 

14. — Colonization 969 

15. — other miscellaneous examples 975 

16. Government intervention may be necessary in default of 

private agency, in cases where private agency would be 
more suitable 977 



BIBLIOGEAPHICAL APPENDIX 

By the Editor 

A. The Mercantile System 981 

B. The Definition of Wealth 981 

C. The Types of Society 982 

D. Productive and Unproductive Labour 982 

E. The Definition of Capital 982 

F. Fundamental Propositions on Capital . -. . . . 983 

G. Division and Combination of Labour 983 

H. Large and Small Farming 983 

I. Population 984 

J. The Law of Diminishing Eeturn 984 

K. Mill's earlier and later Writings on Socialism . . . 984 

L. The later History of Socialism 990 

M. Indian Tenures 991 

N. Irish Agrarian Development 991 

0. The Wages Fund Doctrine 991 

P. The Movement of Population 993 

Q. Profits 994 



CONTENTS liii 

PAGB 

R. Rent 995 

S. The Theory of Value 995 

T. The Value of Money . , 996 

U. Bimetallism 996 

V. International Values 996 

W. The Regulation of Currency 996 

X. Prices in the Nineteenth Century . 997 

Y. Commercial Cycles 999 

Z. Rents in the Nineteenth Century ■ , 999 

AA. Wages in the Nineteenth Century 999 

BB. The Importation of Food . . . . . . . . . 1000 

CC. The Tendency of Profits to a Minimum 1001 

DD. The subsequent History of Co-operation 1001 

^EE. The subsequent History of Income Tax 1001 

¥F. The Taxation of Land 1001 

GG. The Incidence of Taxation 1002 

HH. Company and Partnership Law 1002 

II. Protection 1002 

JJ. Usury Laws 1004 

KK. The Factory Acts 1004 

LL. The Poor Law 1004 

MM. The Province of Government 1004 



Index , » . 1005 



I. 



PRINCIPLES 

OF 

POLITICAL ECONOMY 

PRELIMINARY REMARKS 

In every department of human affairs, Practice long precedes 
Science : systematic enquiry into the modes of action of the powers 
of nature is the tardy product of a long course of efforts to use 
those powers for practical ends. The conception, accordingly, 
of Political Economy as a branch of science is extremely modern ; 
but the subject with which its enquiries are conversant has in all 
ages necessarily constituted one of the chief practical interests of 
mankind, and, in some, a most unduly engrossing one. 

That subject is Wealth. Writers on Political Economy profess 
to teach, or to investigate, the nature of Wealth, and the laws of its 
production and distribution : including, directly or remotely, the 
operation of all the causes by which the condition of mankind, or of 
any society of human beings, in respect to this universal object of 
human desire, is made prosperous or the reverse. Not that any 
treatise on PoHtical Economy can discuss or even enumerate all 
these causes ; but it undertakes to set forth as much as is known 
of the laws and principles according to which they operate. 

Every one has a notion, sufficiently correct for common purposes, 
of what is meant by wealth. The enquiries which relate to it are 
in no danger of being confounded with those relating to any other 
of the great human interests. All know that it is one thing to be 
rich, another thing to be enlightened, brave, or humane ; that the 
questions how a nation is made wealthy, and how it is made free, 
or virtuous, or eminent in literature, in the fine arts, in arms, or in 
pohty, are totally distinct enquiries. Those things, indeed, are all 



2 PRELIMINARY REMARKS 

indirectly connected, and react upon one another. A people has 
sometimes become free, because it had first grown wealthy ; or 
wealthy, because it had first become free. The creed and laws 
of a people act powerfully upon their economical condition ; and 
this again, by its influence on their mental development and social 
relations, reacts upon their creed and laws. But though the sub- 
jects are in very close contact, they are essentially different, and 
have never been supposed to be otherwise. 

It is no part of the design of this treatise to aim at metaphysical 
nicety of definition, where the ideas suggested by a term are already 
as determinate as practical purposes require. But, little as it 
might be expected that any mischievous confusion of ideas could take 
place on a subject so simple as the question, what is to be considered 
as wealth, it is matter of history, that such confusion of ideas has 
existed — that theorists and practical politicians have been equally 
and at one period universally, infected by it, and that for many 
generations it gave a thoroughly false direction to the policy 
of Europe. I refer to the set of doctrines designated, since 
the time of Adam Smith, by the appellation of the Mercantile 
System. 

While this system prevailed, it was assumed, either expressly 
or tacitly, in the whole policy of nations, that wealth consisted 
solely of money ; or of the precious metals, which, when not already 
in the state of money, are capable of being directly converted into 
it. According to the doctrines then prevalent, whatever tended 
to heap up money or bullion in a country added to its wealth. What- 
ever sent the precious metals out of a country impoverished it. 
If a country possessed no gold or silver mines, the only industry 
by which it could he enriched was foreign trade, being the only one 
which could bring in money. Any branch of trade which was 
supposed to send out more money than it brought in, however 
ample and valuable might be the returns in another shape, was 
looked upon as a losing trade. Exportation of goods was favoured 
and encouraged (even by means extremely onerous to the real 
resources of the country), because, the exported goods being stipu- 
lated to be paid for in money, it was hoped that the returns would 
actually be made in gold and silver. Importation of anything, 
other than the precious metals, was regarded as a loss to the nation 
of the whole price of the things imported ; unless they were brought 
in to be re-exported at a profit, or unless, being the materials or 
instruments of some industry practised in the country itself, they 



PRELIMINARY REMARKS 3 

gave the power of producing exportable articles at smaller cost, 
and thereby effecting a larger exportation. The commerce of the 
world was looked upon as a struggle among nations, which could 
draw to itself the largest share of the gold and silver in existence ; 
and in this competition no nation could gain anything, except by 
making others lose as much, or, at the least, preventing them from 
gaining it. 

It often happens that the universal behef of one age of mankind — 
a behef from which no one was, nor, without an extraordinary 
effort of genius and courage, could at that time be free — becomes 
to a subsequent age so palpable an absurdity, that the only difficulty 
then is to imagine how such a thing can ever have appeared credible. 
It has so happened with the doctrine that money is synonymous 
with wealth. The conceit seems too preposterous to be thought of as 
a serious opinion. It looks Uke one of the crude fancies of childhood, 
instantly corrected by a word from any grown person. But let no 
one feel confident that he would have escaped the delusion if he 
had lived at the time when it prevailed. All the associations en- 
gendered by common life, and by the ordinary course of business, 
concurred in promoting it. So long as those associations were the 
only medium through which the subject was looked at, what we 
now think so gross an absurdity seemed a truism. Once questioned, 
indeed, it was doomed ; but no one was Hkely to think of questioning 
it whose mind had not become familiar with certain modes of stating 
and of contemplating economical phenomena, which have only 
found their way into the general understanding through the influence 
of AdSm Smith and of his expositors. 

In common discourse, wealth is always expressed in money. \ 
If you ask how rich a person is, you are answered that he has so 
many thousand pounds. All income and expenditure, all gains 
and losses, everything by which* one becomes richer or poorer, are 
reckoned as the coming in or going out of so much money. It is 
true that in the inventory of a person's fortune are included, not 
only the money in his actual possession, or due to him, but all other 
articles of value. These, however, enter, not in their own character, 
but in virtue of the sums of money which they would sell for ; 
and if they would sell for less, their owner is reputed less rich, though 
the things themselves are precisely the same. It is true, also, that 
people do not grow rich by keeping their money unused, and that 
they must be wilHng to spend in order to gain. Those who enrich 
themselves by commerce, do so by giving money for goods as well 



PRELIMINARY REMARKS 

as goods for money ; and the first is as necessary a part of the process 
as the last. But a person who buys goods for purposes of gain, 
does so to sell them again for money, and in the expectation of 
receiving more money than he laid out : to get money, therefore, 
seems even to the person himself the ultimate end of the whole. It 
often happens that he is not paid in money, but in something else ; 
having b)ought goods to a value equivalent, which are set ofi against 
those he sold. But he accepted these at a money valuation, and in 
the belief that they would bring in more money eventually than 
the price at which they were made over to him. A dealer doing 
a large amount of business, and turning over his capital rapidly, 
has but a small portion of it in ready money at any one time. But 
he only feels it valuable to him as it is convertible into money : 
he considers no transaction closed until the net result is either 
paid or credited in money : when he retires from business it is 
into money that he converts the whole, and not until then does he 
deem himself to have realized his gains : just as if money were the 
only wealth, and money's worth were only the means of attaining it. 
If it be now asked for what end money is desirable, unless to supply 
the wants or pleasures of oneself or others, the champion of the 
system would not be at all embarrassed by the question. True, he 
would say, these are the uses of wealth, and very laudable uses while 
confined to domestic commodities, because in that case, by exactly 
the amount which you expend, you enrich others of your countrymen. 
Spend your wealth, if you please, in whatever indulgences you have 
a taste for ; but your wealth is not the indulgences, it is the sum 
of money, or the annual money income, with which you purchase 
them. 

While there were so many things to render the assumption 
which is the basis of the mercantile system plausible, there is also 
some small foundation in reason, 'though a very insufficient one 
for the distinction which that system so emphatically draws between 
money and every other kind of valuable possession. We really, 
and justly, look upon a person as possessing the advantages of wealth, 
not in proportion to the useful and agreeable things of which he is 
in the actual enjoyment, but to his command over the general fund of 
things useful and agreeable ; the power he possesses of providing 
for any exigency, or obtaining any object of desire. Now, money is 
itself that power ; while all other things, in a civiUzed state, seem 
to confer it only by their capacity of being exchanged for money. 
To possess any other article of wealth, is to possess that particulai 



PRELIMINARY REMARKS 6 

thing, and nothing else : if you wish for another thing instead of it, 
you have first to sell it, or to submit to the inconvenience and delay 
(if not the impossibility) of finding some one who has what you want, 
and is wilhng to barter it for what you have. But with money 
you are at once able to buy whatever things are for sale : and one 
whose fortune is in money, or in things rapidly convertible into it, 
seems both to himself and others to possess not any one thing, 
but ail the things which the money places it at his option to pur- 
chase. The greatest part of the utiHty of wealth, beyond a very 
moderate quantity, is not the indulgences it procures, but the 
reserved power which its possessor holds in his hands of attaining 
purposes generally ; and this power no other kind of wealth confers 
so immediately or so certainly as money. It is the only form of 
wealth which is not merely applicable to some one use, but can be 
turned at once to any use. And this distinction was the more likely 
to make an impression upon governments, as it is one of considerable 
importance to them. A civiHzed government derives comparatively 
little advantage from taxes unless it can collect them in money : and 
if it has large or sudden payments to make, especially payments in 
foreign countries for wars or subsidies, either for the sake of con- 
quering or of not being conquered (the two chief objects of national 
policy until a late period), scarcely any medium of payment except 
money will serve the purpose. All these causes conspire to make 
both individuals and governments, in estimating their means, 
attach annost exclusive importance to money, either in esse or 
in posse, and look upon all other things (when viewed as part of their 
resources) scarcely otherwise than as the remote means of obtaining 
that which alone, when obtained, affords the indefinite, and at the 
same time instantaneous, command over objects of desire, which 
best answers to the idea of wealth. 

An absurdity, however, does not cease to be an absurdity when 
we kC7e discovered what were the appearances which made it 
plausible ; and the Mercantile Theory could not fail to be seen in 
its true character when men began, even in an imperfect manner, 
to explore into the foundations of things, and seek their premises 
from elementary facts, and not from the forms and phrases of com- 
mon discourse. So soon as they asked themselves what is really 
meant by money — what it is in its essential characters, and the 
precise nature of the functions it performs — they reflected that 
money, like other things, is only a desirable possession on account 
of its uses ; and that these, instead of being, as they delusively 



6 PRELIMINARY REMARKS 

appear, indefinite, are of a strictly defined and limited description, 
namely, to facilitate the distribution of the produce of industry 
according to the convenience of those among whom it is shared. 
Further consideration showed that the uses of money are in no 
respect promoted by increasing the quantity which exists and circu- 
lates in a country ; the service which it performs being as well 
rendered by a small as by a large aggregate amount. Two million 
quarters of corn will not feed so many persons as four millions ; 
but two millions of pounds sterling will carry on as much traffic, 
will buy and sell as many commodities, as four millions, though at 
lower nominal prices. Money, as money, satisfies no want ; its 
worth to any one, consists in its being a convenient shape in which to 
receive his incomings of all sorts, which incomings he afterwards, 
at the times which suit him best, converts into the forms in which 
they can be useful to him. Great as the difference would be between 
a country with money, and a country altogether without it, it would 
be only one of convenience ; a saving of time and trouble, like 
grinding by water power instead of by hand, or (to use Adam 
Smith's illustration) like the benefit derived from roads ; and to 
mistake money for wealth is the same sort of error as to mistake 
the highway which may be the easiest way of getting to your house 
or lands, for the house and lands themselves.^ 

Money, being the instrument of an important pubHc and private 
purpose, is rightly regarded as wealth ; but everything e'^e which 
serves any human purpose, and which nature does not afford gratui- 
tously, is wealth also. To be wealthy is to have a large stock of 
useful articles, or the means of purchasing them. Everything forms 
therefore a part of wealth, which has a power of purchasing ; for 
which anything useful or agreeable would be given in exchange. 
Things for which nothing could i^e obtained in exchange, however 
useful or necessary they may be, are not wealth in the sense in which 
the term is used in Political Economy. Air, for example, though 
the most absolute of necessaries, bears no price in the market, 
because it can be obtained gratuitously : to accumulate a stock of 
it would yield no profit or advantage to any one ; and the laws of its 
production and distribution are the subject of a very different 
study from Political Economy. But though air is not wealth, 
mankind are much richer by obtaining it gratis, since the time 

^ [See Appendix A. The Mercantile System.'] 



^ 



PRELIMINARY REMARKS 7 

and labour which would otherwise be required for supplying the 
most pressing of all wants, can be devoted to other purposes. 
It is possible to imagine circumstances in which air would be a 
part of wealth. If it became customary to sojourn long in places 
where the air does not naturally penetrate, as in diving-bells sunk 
in the sea, a supply of air artificially furnished would, Hke water 
conveyed into houses, bear a price : and if from any revolution in 
nature the atmosphere became too scanty for the consumption, oi 
could be monopoHzed, air might acquire a very high marketable 
value. In such a case, the possession of it, beyond his own wants, 
would be, to its owner, wealth ; and the general wealth of mankind 
might at first sight appear to be increased, by what would be so 
great a calamity to them. The er^or would lie in not considering, 
that however rich the possessor of air might become at the expense 
of the rest of the community, all persons else would be poorer by all 
that they were compelled to pay for what they had before obtained 
without payment. 

This leads to an important distinction in the meaning of the 
word wealth, as applied to the possessions of an individual, and to 
those of a nation, or of mankind. In the wealth of mankind, nothing 
is included which does not of itself answer some purpose of utiUty 
or pleasure. To an individual anything is wealth, which, though 
useless in itself, enables him to claim from others a part of theii 
stock of things useful or pleasant. Take, for instance, a mortgage 
of a thousand pounds on a landed estate. This is wealth to the 
person to whom it brings in a revenue, and who could perhaps sell 
it in the market for the full amount of the debt. But it is not wealth 
to the country ; if the engagement were annulled, the country 
would be neither poorer nor richer. The mortgagee would have 
lost a thousand pounds, and the owner of the land would have gained 
it. Speaking nationally, the mortgage was not itself wealth, but 
merely gave A a claim to a portion of the wealth of B. It was 
wealth to A, and wealth which he could transfer to a third person ; 
but what he so transferred was in fact a joint ownership, to the 
extent of a thousand pounds, in the land of which B was nominally 
the sole proprietor. The position of fundholders, or owners of the 
pubhc debt of a country, is similar. They are mortgagees on the 
general wealth of the country. The cancelling of the debt would be 
no destruction of wealth, but a transfer of it : a wrongful abstrac- 
tion of wealth from certain members of the community, for the 
profit of the government, or of the tax-payers. Funded property 



8 PRELIMINARY REMARKS 

therefore cannot be counted as part of the national wealth. This 
is not always borne in mind by the dealers in statistical calculations. 
For example, in estimates of the gross income of the country, 
founded on the proceeds of the income-tax, incomes derived from 
the funds are not always excluded : though the tax-payers are assessed 
on their whole nominal income, without being permitted to deduct 
from it the portion levied from them in taxation to form the income 
of the fundholder. In this calculation, therefore, one portion of the 
general income of the country is counted twice over, and the aggre- 
gate amount made to appear greater than it is by almost ^ thirty 
millions. A country, however, may include in its wealth all stock 
held by its citizens in the funds of foreign countries, and other debts 
due to them from abroad. But even this is only wealth to them 
by being a part ownership in wealth held by others. It forms no 
part of the collective wealth of the human race. It is an element 
in the distribution, but not in the composition, of the general 
wealth. 

2 Another example of a possession which is wealth to the person 
holding it, but not wealth to the nation, or to mankind, is slaves. 
It is by a strange confusion of ideas that slave property (as it is 
termed) is counted, at so much per head, in an estimate of the wealth, 
or of the capital, of the country which tolerates the existence of 
such property. If a human being, considered as an object possessing 
productive powers, is part of the national wealth when his powers 
are owned by another man, he cannot be less a part of it when they 
are owned by himself. Whatever he is worth to his master is so 
much property abstracted from himself, and its abstraction cannot 
augment the possessions of the two together, or of the country 
to which they both belong. In propriety of classification, however, 
the people of a country are not to be counted in its wealth. They 
are that for the sake of which its wealth exists. The term wealth 
is wanted to denote the desirable objects which they possess, not 
inclusive of, but in contradistinction to, their own persons. They 
are not wealth to themselves, though they are means of acquir- 
ing it. 

It has been proposed to define wealth as signifying " instru- 
ments : " meaning not tools and machinery alone, but the whole 
accumulation possessed by individuals or communities, of means 
for the attainment of tKeir ends. Thus, a field is an instrument, 

1 [1st ed. (1848) " about " ; 5th ed. (1862) *' almost."] 

2 [Paragraph added in 6th ed. (1865).] 



PRELIMINARY RE]\IARKS 9 

because it is a means to the attainment of corn. Corn is an instru- 
ment, being a means to the attainment of flour. Flour is an instru- 
ment, being a means to the attainment of bread. Bread is an 
instrument, as a means to the satisfaction of hunger and to the 
support of Hfe. Here we at last arrive at things which are not 
instruments, being desired on their own account, and not as mere 
means to something beyond. This view of the subject is philoso- 
phically correct ; or rather, this mode of expression may be usefully 
employed along with others, not as conveying a different view of the 
subject from the common one, but as giving more distinctness and 
reahty to the common view. It departs, however, too widely from 
the custom of language, to be likely to obtain general acceptance, 
or to be of use for any other purpose than that of occasional illus- 
tration. 

Wealth, then, may be defined, all useful or agreeable things 
which possess exchangeable value ; or, in other words, all useful or 
agreeable things except those which can be obtained, in the quantity 
desired, without labour or sacrifice. To this definition, the only 
objection seems to be, that it leaves in uncertainty a question which 
has been much debated — whether what are called immaterial pro- 
ducts are to be considered as wealth : whether, for example, the 
skill of a workman, or any other natural or acquired power of body 
or mind, shall be called wealth, or not : a question, not of very great 
importance, and which, so far as requiring discussion, will be more 
conveniently considered in another place.* i 

These things having been premised respecting wealth, we shall 
next turn our attention to the extraordinary differences in respect 
to it, which exist between nation and nation, and between different 
ages of the world ; differences both in the quantity of wealth, and 
in the kind of it ; as well as in the manner in which the wealth 
existing in the community is shared among its members. 

There is, perhaps, no people or community, now existing, which 
subsists entirely on the spontaneous produce of vegetation. But 
many tribes still Hve exclusively, or almost exclusively, on wild 
animals, the produce of hunting or fishing. Their clothing is skins ; 
their habitations, huts rudely formed of logs or boughs of trees, and 
abandoned at an hour's notice. The food they use being little sus- 
ceptible of storing up, they have no accumulation of it, and are often 

* Infra, book i. chap. iij. 

^ [See Appendix B. The Definition of Wealth.'] 



10 PRELIMINARY KJiMARK^ 

exposed to great privations. The wealth of such a community 
consists solely of the skins they wear ; a few ornaments, the taste for 
which exists among most savages ; some rude utensils ; the weapons 
with which they kill their game, or fight against hostile competitors 
for the means of subsistence ; canoes for crossing rivers and lakes, 
or fishing in the sea ; and perhaps some furs or other productions 
of the wilderness, collected to be exchanged with civihzed people for 
blankets, brandy, and tobacco ; of which foreign produce also there 
may be some unconsumed portion in store. To this scanty inventory 
of material wealth, ought to be added their land ; an instrument of 
production of which they make slender use, compared with more 
settled communities, but which is still the source of their subsistence, 
and which has a marketable value if there be any agricultural com- 
munity in the neighbourhood requiring more land than it possesses. 
This is the state of greatest poverty in which any entire community 
of human beings is known to exist ; though there are much richer 
communities in which portions of the inhabitants are in a condition, 
as to subsistence and comfort, as little enviable as that of the savage. 
The first great advance beyond this state consists in the domestica- 
tion of the more useful animals ; giving rise to the pastoral or 
nomad state, in which mankind do not live on the produce of hunting, 
but on milk and its products, and on the annual increase of flocks 
and herds. This condition is not only more desirable in itself, 
but more conducive to further progress : and a much more con- 
siderable amount of wealth is accumulated under it. So long as 
the vast natural pastures of the earth are not yet so fully occupied 
as to be consumed more rapidly than they are spontaneously re- 
produced, a large and constantly increasing stock of subsistence 
may be collected and preserved, with little other labour than that 
of guarding the cattle from the attacks of wild beasts, and from the 
force or wiles of predatory men. Large flocks and herds, therefore, 
are in time possessed, by active and thrifty individuals through 
their own exertions, and by the heads of families and tribes through 
the exertions of those who are connected with them by allegiance. 
There thus arises, in the shepherd state, inequality of possessions ; 
a thing which scarcely exists in the savage state, where no one 
has much more than absolute necessaries, and in case of deficiency 
must share even those with his tribe. In the nomad state, some have 
an abundance of cattle, sufiicient for the food of a multitude, while 
others hav«. not contrived to appropriate and retain any superfluity, 
or perhaps any cattle at all. But subsistence has ceased to be pre- 



PRELIMINARY REMARKS II 

carious, since the more successful have no other use which they can 
make of their surplus than to feed the less fortunate, while every 
increase in the number of persons connected with them is an increase 
both of security and of power : and thus they are enabled to divest 
themselves of all labour except that of government and superin- 
tendence, and acquire dependents to fight for them in war and to 
serve them in peace. One of the features of this state of society is, 
that a part of the community, and in some degree even the whole 
of it, possess leisure. Only a portion of time is required for pro- 
curing food, and the remainder is not engrossed by anxious thought 
for the morrow, or necessary repose from muscular activity. Such 
a life is highly favourable to the growth of new wants, and opens a 
possibility of their gratification. A desire arises for better clothing, 
utensils, and implements, than the savage state contents itself with ; 
and the surplus food renders it practicable to devote to these purposes 
the exertions of a part of the tribe. In all or most nomad com- 
munities we find domestic manufactures of a coarse, and in some, 
of a fine kind. There is ample evidence that while those parts 
of the world which have been the cradle of modern civilization 
were still generally in the nomad state, considerable skill had been 
attained in spinning, weaving, and dyeing woollen garments, in the 
preparation of leather, and in what appears a still more difiicult 
invention, that of working in metals. Even speculative science 
took its first beginnings from the leisure characteristic of this stage 
of social progress. The earhest astronomical observations are 
attributed, by a tradition which has much appearance of truth, 
to the shepherds of Chaldea. 

From this state of society to the agricultural the transition 
is not indeed easy (for no great change in the habits of mankind 
is otherwise than difiicult, and in general either painful or very slow), 
but it lies in what may be called the spontaneous course of events 
The growth of the population of men and cattle began in time to press 
upon the earth's capabilities of yielding natural pasture : and this 
cause doubtless produced the first tilHng of the ground, just as at a 
later period the same cause made the superfluous hordes of the 
nations which had remained nomad precipitate themselves upon 
those which had already become agricultural ; until, these having 
become sufficiently powerful to repel such inroads, the invading 
nations, deprived of this outlet, were obliged also to become agri- 
cultural communities. 

But after this great step had been completedj the subsequent 



12 PRELB'IINARY REMARKS 

progress of mankind seems by no means to have been so rapid 
(certain rare combinations of circumstances excepted) as might 
perhaps have been anticipated. The quantity of human food which 
the earth is capable of returning even to the most wretched system 
of agriculture, so much exceeds what could be obtained in the 
purely pastoral state, that a great increase of population is invariably 
the result. But this additional food is only obtained by a great 
additional amount of labour ; so that not only an agricultural 
has much less leisure than a pastoral population, but, with the 
imperfect tools and unskilful processes which are for a long time 
employed (and which over the greater part of the earth have not 
even yet been abandoned), agriculturists do not, unless in unusually 
advantageous circumstances of climate and soil, produce so great 
a surplus of food, beyond their necessary consumption, as to sup- 
port any large class of labourers engaged in other departments of 
industry. The surplus, too, whether small or great, is usually 
torn from the producers, either by the government to which they 
are subject, or by individuals, who by superior force, or by availing 
themselves of religious or traditional feehngs of subordination, 
have established themselves as lords of the soil. 

The first of these modes of appropriation, by the government, 
is characteristic of the extensive monarchies which from a time 
beyond historical record have occupied the plains of Asia. The govern- 
ment, in those countries, though varying in its quahties according 
to the accidents of personal character, seldom leaves much to the 
cultivators beyond mere necessaries, and often strips them so bare 
even of these, that it finds itself obUged, after taking all they have, 
to lend part of it back to those from whom it has been taken, in 
order to provide them with seed, and enable them to support Hfe 
until another harvest. Under the regime in question, though 
the bulk of the population are ill provided for, the government, 
by collecting small contributions from great numbers, is enabled, 
with any tolerable management, to make a show of riches quite out 
of proportion to the general condition of the society ; and hence 
the inveterate impression, of which Europeans have only at a late 
period been disabused, concerning the great opulence of Oriental 
nations. In this wealth, without reckoning the large portion which 
adheres to the hands employed in collecting it, many persons of 
course participate, besides the immediate household of the sovereign. 
A large part is distributed among the various functionaries of 
government, and among the objects of the sovereign's favour or 



PRELIMINARY REMARKS 13 

caprice. A part is occasionally employed in works of pubKc utility. 
The tanks, wells, and canals for irrigation, without which in many 
tropical climates cultivation could hardly be carried on ; the 
embankments which confine the rivers, the bazars for dealers, and 
the seraees for travellers, none of which could have been made 
by the scanty means in the possession of those using them, owe 
their existence to the HberaHty and enhghtened self-interest of the 
better order of princes, or to the benevolence or ostentation of here 
and there a rich individual, whose fortune, if traced to its source, 
is always found to have been drawn immediately or remotely from 
the public revenue, most frequently by a direct grant of a portion 
of it from the sovereign. 

The ruler of a society of this description, after providing largely 
for his own support, and that of all persons in whom he feels an 
interest, and after maintaining as many soldiers as he thinks needful 
for his security or his state, has a disposable residue, which he is glad 
to exchange for articles of luxury suitable to his disposition : as 
have also the class of persons who have been enriched by his favour, 
or by handUng the pubhc revenues. A demand thus arises for 
elaborate and costly manufactured articles, adapted to a narrow 
but a wealthy market. This demand is often supphed almost 
exclusively by the merchants of more advanced communities, but 
often also raises up in the country itself a class of artificers, by whom 
certain fabrics are carried to as high excellence as can be given by 
patience, quickness of perception and observation, and manual 
dexterity, without any considerable knowledge of the properties 
of objects : such as some of the cotton fabrics of India. These 
artificers are fed by the surplus food which has been taken by the 
government and its agents as their share of the produce. So Hterally 
is this the case, that in some countries the workman, instead of 
taking his work home, and being paid for it after it is finished, proceeds 
with his tools to his customer's house, and is there subsisted until 
the work is complete. The insecurity, however, of all possessions in 
this state of society, induces evea the richest purchasers to give a 
preference to such articles as, being of an imperishable nature, and 
containing great value in small bulk, are adapted for being concealed 
or carried off. Gold and jewels, therefore, constitute a large pro- 
portion of the wealth of these nations, and many a rich Asiatic 
carries nearly his whole fortune on his person, or on those of the 
women of his harem. No one, except the monarch, thinks of invest- 
ing his wealth in a manner not susceptible of removal. He indeed, 



14 PRELIMINARY REMARKS 

if lie feels safe on his throne, and reasonably secure of transmitting it 
to his descendants, sometimes indulges a taste for durable edifices, 
and produces the Pyramids, or the Taj Mehal and the Mausoleum 
at Sekundra. The rude manufactures destined for the wants 
of the cultivators are worked up by village artisans, who are re- 
munerated by land given to them rent-free to cultivate, or by fees 
paid to them in kind from such share of the crop as is left to the 
villagers by the government. This state of society, however, is 
not destitute of the mercantile class ; composed of two divisions, 
grain dealers and money dealers. The grain dealers do not usually 
buy grain from the producers, but from the agents of government, 
who, receiving the revenue in kind, are glad to devolve upon others 
the business of conveying it to the places where the prince, his 
chief civil and military officers, the bulk of his troops, and the 
artisans who supply the wants of these various persons, are assembled. 
The money dealers lend to the unfortunate cultivators, when ruined 
by bad seasons or fiscal exactions, the means of supporting life 
and continuing their cultivation, and are repaid with enormous in- 
terest at the next harvest ; or. on a larger scale, they lend to the 
government, or to those to whom it has granted a portion of the 
revenue, and are indemnified by assignments on the revenue col- 
lectors, or by having certain districts put into their possession, that 
they may pay themselves from the revenues ; to enable them to do 
which, a great portion of the powers of government are usually 
made over simultaneously, to be exercised by them until either the 
districts are redeemed, or their receipts have Hquidated the debt. 
Thus, the commercial operations of both these classes of dealers 
take place principally upon that part of the produce of the country 
which forms the revenue of the government. From that revenue 
their capital is periodically replaced with a profit, and that is also 
the source from which their original funds have almost always been 
derived. Such, in its general features, is the economical condition 
of most of the countries of Asia, as it has been from beyond the 
commencement of authentic history, and is still [1848], wherever 
not disturbed by foreign influences. 

In the agricultural communities of ancient Europe whose early 
condition is best known to us, the course of things was different. 
These, at their origin, were mostly small town-communities, at the 
first plantation of vfhich, in an unoccupied country, or in one from 
which the former inhabitants had been expelled, the land which 
was taken possession of was regularly divided, in equal or in graduated 



PRELIMINARY REMARKS 15 

allotments, among the families composing the community. In 
some cases, instead of a town there was a confederation of towns, 
occupied by people of the same reputed race, and who were sup- 
posed to have settled in the country about the same time. Each 
family produced its own food and the materials of its clothing, 
which were worked up within itself, usually by the women of the 
family, into the coarse fabrics with which the age was contented. 
Taxes there were none, as there were either no paid officers of 
government, or if there were, their payment had been provided 
for by a reserved portion of land, cultivated by slaves on account 
of the state ; and the army consisted of the body of citizens. 
The whole produce of the soil, therefore, belonged, without de- 
duction, to the family which cdltivated it. So long as the progress 
of events permitted this disposition of property to last, the 
state of society was, for the majority of the free cultivators, 
probably not an undesirable one ; and under it, in some cases, 
the advance of mankind in intellectual culture was extraordinarily 
rapid and brilliant. This more especially happened where, along 
with advantageous circumstances of race and climate, and no doubt 
with many favourable accidents of which all trace is now lost, was 
combined the advantage of a position on the shores of a great in- 
land sea, the other coasts of which were already occupied by settled 
communities. The knowledge which in such a position was ac- 
quired of foreign productions, and the easy access of foreign ideas 
and inventions, made the chain of routine, usually so strong in a 
rude people, hang loosely on these communities. To speak only 
of their industrial development ; they early acquired variety of 
wants and desires, which stimulated them to extract from their 
own soil the utmost which they knew how to make it yield. ; and 
when their soil was sterile, or after they had reached the hmit 
of its capacity, they often became traders, and bought up the pro- 
ductions of foreign countries, to sell them in other countries with a 
profit. 

The duration, however, of this state of things was from the first 
precarious. These httle communities lived in a state of almost per- 
petual war. For this there were many causes. In the ruder and 
purely agricultural communities a frequent cause was the mere 
pressure of their increasing population upon their limited land, 
aggravated as that pressure so often was by deficient harvests, in 
the rude state of their agriculture, and depending as they did for 
food upon a very small extent of country. On these occasions, 



16 PRELIMINARY REMARKS 

the community often emigrated en masse, or sent fortli a swarm of 
its youth, to seek, sword in hand, for some less warlike people, who 
could be expelled from their land, or detained to cultivate it as slaves 
for the benefit of their despoilers. What the less advanced tribes 
did from necessity, the more prosperous did from ambition and the 
mihtary spirit : and after a time the whole of these city-communities 
were either conquerors or conquered. In some cases, the conquering 
state contented itself with imposing a tribute on the vanquished : 
who being, in consideration of that burden, freed from the expense 
and trouble of their own miUtary and naval protection, might 
enjoy under it a considerable share of economical prosperity, while 
the ascendant community obtained a surplus of wealth, available 
for purposes of collective luxury or magnificence. From such a 
surplus the Parthenon and the PropylaBa were built, the sculptures 
of Pheidias paid for, and the festivals celebrated, for which ^schylus, 
Sophocles, Euripides, and Aristophanes composed their dramas. 
But this state of political relations, most useful, while it lasted, to the 
progress and ultimate interest of mankind, had not the elements of 
durability. A small conquering community which does not incor- 
porate its conquests, always ends by being conquered. Universal 
dominion, therefore, at last rested with the people who practised 
this art — with the Eomans ; who, whatever were their other devices, 
always either began or ended by taking a great part of the land to 
enrich their own leading citizens, and by adopting into the governing 
body the principal possessors of the remainder. It is unnecessary 
to dwell on the melancholy economical history of the Koman empire. 
When inequality of wealth once commences, in a community not 
constantly engaged in repairing by industry the injuries of fortune, 
its advances are gigantic ; the great masses of wealth swallow up 
the smaller. The Eoman empire ultimately became covered with 
the vast landed possessions of a comparatively few famiUes, for 
whose luxury, and still more for whose ostentation, the most costly 
products were raised, while the cultivators of the soil were slaves, 
or small tenants in a nearly servile condition. From this time the 
wealth of the empire progressively decHned. In the beginning, the 
pubHc revenues, and the resources of rich individuals, sufficed 
at least to cover Italy with splendid edifices, pubHc and private ; 
but at length so dwindled under the enervating influences of mis- 
government, that what remained was not even sufficient to keep 
those edifices from decay. The strength and riches of the civilized 
world became inadequate to make head against the nomad popula- 



PRELIMINARY REMARKS 1? 

tion which skirted its northern frontier ; they overran the empire, 
and a different order of things succeeded. 

In the new frame in which European society was now cast, 
the population of each country may be considered as composed, 
in unequal proportions, of two distinct nations or races, the con- 
querors and the conquered : the first the proprietors of the land, 
the latter the tillers of it. These tillers were allowed to occupy the 
land on conditions which, being the product of force, were always 
onerous, but seldom to the extent of absolute slavery. Already, 
in the later times of the Roman empire, predial slavery had exten- 
sively transformed itself into a kind of serfdom : the coloni of the 
Romans were rather villeins than actual slaves ; and the incapacity 
and distaste of the barbarian conquerors for personally superintend- 
ing industrial occupations, left no alternative but to allow to the 
cultivators, as an incentive to exertion, some real interest in the 
soil. If, for example, they were compelled to labour, three days 
in the week, for their superior, the produce of the remaining days 
was their own. If they were required to supply the provisions 
of various sorts, ordinarily needed for the consumption of the castle, 
and were often subject to requisitions in excess, yet after supplying 
these demands they were suffered to dispose at their wiU of whatever 
additional produce they could raise. Under this system during the 
Middle Ages it was not impossible, no more than in modern Russia 
(where, up to the recent measure of emancipation, the same system 
stiU essentially prevailed) ,i for serfs to acquire property ; and in 
fact, their accumulations are the primitive source of the wealth of 
modern Europe. 

In that age of violence and disorder, the first use made by a serf 
of any small provision which he had been able to accumulate, was to 
buy his freedom and withdraw himself to some town or fortified 
village, which had remained undestroyed from the time of the Roman 
dominion ; or, without buying his freedom, to abscond thither. In 
that place of refuge, surrounded by others of his own class, he 
attempted to live, secured in some measure from the outrages and 
exactions of the warrior caste, by his own prowess and that of his 
feUows. These emancipated serfs mostly became artificers ; and 
lived by exchanging the produce of their industry for the surplus 
food and material which the soil yielded to its feudal proprietors. 
This gave rise to a sort of European counterpart of the economical 

* [Parenthesis added in 6th ed. (1865).] 



18 PRELIMINARY REMARKS 

condition of Asiatic countries ; except that, in lieu of a single mon- 
arch and a fluctuating body of favourites and employes, there was 
a numerous and in a considerable degree fixed class of great land- 
holders ; exhibiting far less splendour, because individually disposing 
of a much smaller surplus produce, and for a long time expending 
the chief part of it in maintaining the body of retainers whom the 
warlike habits of society, and the Uttle protection afforded by govern- 
ment, rendered indispensable to their safety. The greater stabiHty, 
the fixity of personal position, which this state of society afforded, 
in comparison with the Asiatic polity to which it economically 
corresponded, was one main reason why it was also found more 
favourable to improvement. From this time the economical 
advancement of society has not been further interrupted. Security 
of person and property grew slowly, but steadily ; the arts of life 
made constant progress ; plunder ceased to be the principal source 
of accumulation ; and feudal Europe ripened into commercial and 
manufacturing Europe. In the latter part of the Middle Ages, the 
towns of Italy and Flanders, the free cities of Germany, and some 
towns of France and England, contained a large and energetic 
population of artisans, and many rich burghers, whose wealth 
had been acquired by manufacturing industry, or by trading in 
the produce of such industry. The Commons of England, the Tiers- 
Etat of France, the bourgeoisie of the Continent generally, are the 
descendants of this class. As these were a saving class, while the 
posterity of the feudal aristocracy were a squandering class, the 
former by degrees substituted themselves for the latter as the owners 
of a great proportion of the land. This natural tendency was 
in some cases retarded by laws contrived for the purpose of detaining 
the land in the families of its existing possessorSj in other cases 
accelerated by pohtical revolutions. Gradually, though more 
slowly, the immediate cultivators of the soil, in all the more civilized 
countries, ceased to be in a servile or semi-servile state : though 
the legal position, as well as the economical condition attained by I 

them, vary extremely in the different nations of Europe, and in the J 

great communities which have been founded beyond the Atlantic j 

by the descendants of Europeans. 

The world now contains several extensive regions, provided 
with the various ingredients of wealth in a degree of abundance of 
which former ages had not even the idea. Without compulsory 
labour, an enormous mass of food is annually extracted from 
the soil, and maintains, besides the actual producers, an equal, 



PE-ELIMINARY REMARKS 19 

sometimes a greater, number of labourers occupied in producing 
conveniences and luxuries of innumerable kinds, or in transporting 
them from place to place ; also a multitude of persons employed in 
directing and superintending these various labours ; and over and 
above all these, a class more numerous than in the most luxurious 
ancient societies, of persons whose occupations are of a kind not 
directly productive, and of persons who have no occupation at all. 
The food thus raised supports a far larger population than had ever 
existed (at least in the same regions) on an equal space of ground ; 
and supports them with certainty, exempt from those periodically 
recurring famines so abundant in the early history of Europe, and in 
Oriental countries even now not unfrequent. Besides this great 
increase in the quantity of food, it has greatly improved in quahty 
and variety ; while conveniences and luxuries, other than food, 
are no longer limited to a small and opulent class, but descend, in 
great abundance, through many widening strata in society. The 
collective resources of one of these communities, when it chooses 
to put them forth for any unexpected purpose ; its abihty to main- 
tain fleets and armies, to execute pubHc works, either useful or 
ornamental, to perform national acts of beneficence like the ransom 
of the West India slaves ; to found colonies, to have its people 
taught, to do anything in short which requires expense, and to do 
it with no sacrifice of the necessaries or even the substantial comforts 
of its inhabitants, are such as the world never saw before. 

But in all these particulars, characteristic of the modern indus- 
trial communities, those communities difier widely from one another. 
Though abounding in wealth as compared with former ages, they do 
go in very different degTees, Even of the countries which are 
justly accounted the richest, some have made a more complete 
use of their productive resources, and have obtained, relatively 
to their territorial extent, a much larger produce, than others ; nor 
do they differ only in amount of wealth, but also in the rapidity 
of its increase. The diversities in the distribution of wealth are 
still greater than in the production. There are great differences 
in the condition of the poorest class in different countries ; and in 
the proportional numbers and opulence of the classes which are 
above the poorest. The very nature and designation of the classes 
who originally share among them the produce of the soil, vary not a 
little in different places. In some, the landowners are a class in 
themselves, almost entirely separate from the classes engaged in 
industry : in others, the proprietor of the land is almost universally 



20 PRELIMINARY REMARKS 

its cultivator, owning the ploiigli, and often himself holding it. 
Wliere the proprietor himself does not cultivate, there is sometimes, 
between him and the labourer, an '"ntermediate agency, that of the 
farmer who advances the subsistence of the labourers, supplies the 
instruments of production, and receives, after pajring a rent to the 
landowner, all the produce : in other cases, the landlord, his paid 
agents, and the labourers, are the only sharers. Manufactures, 
again, are sometimes carried on by scattered individuals, who own 
or hire the tools or machinery they require, and employ little labour 
besides that of their own family ; in other cases, by large numbers 
working together in one building, with expensive and complex 
machinery owned by rich manufacturers. The same difference 
exists in the operations of trade. The wholesale operations indeed 
are everywhere carried on by large capitals, where such exist ; but 
the retail dealings, which collectively occupy a very great amount of 
capital, are sometimes conducted in small shops, chiefly by the 
personal exertions of the dealers themselves, with their families, 
and perhaps an apprentice or two ; and sometimes in large estab- 
lishments, of which the funds are supplied by a wealthy individual 
or association, and the agency is that of numerous salaried shopmen 
or shopwomen. Besides these differences in the economical pheno- 
mena presented by different parts of what is usually called the 
civilized world, all those earlier states which we previously passed 
in review have continued in some part or other of the world, down to 
our own time. Hunting communities still exist in America, nomadic 
in Arabia and the steppes of Northern Asia ; Oriental society 
is in essentials what it has always been ; the great empire of Russia 
is^ even now, in many respects, the scarcely modified image of feudal 
Europe. Every one of the great types of human society, down to 
that of the Esquimaux or PatagonianSj is still extant.^ 

These remarkable differences in the state of different portions of 
the human race, with regard to the production and distribution of 
wealth, must, like all other phenomena, depend on causes. And it 
is not a sufficient explanation to ascribe them exclusively to the 
degrees of knowledge possessed at differeiit times and places, of the 
laws of nature and the physical arts of life. Many other causes co- 
operate ; and that very progress and unequal distribution of physical 

1 [So since 2nd ed. (1849). In the 1st ed. (1848) the text ran : " Russia and 
Hungary are," &c.] 

? [See Appendix 0. The Types of Society. 1 



PRELIMINARY REMARKS 21 

knowledge are partly the effects, as well as partly the causes, of the 
state of the production and distribution of wealth. 

In so far as the economical condition of nations turns upon the 
state of physical knowledge, it is a subject for the physical sciences, 
and the arts founded on them. But in so far as the causes are moral 
or psychological, dependent on institutions and social relations, 
or on the principles of human nature, their investigation belongs 
not to physical, but to moral and social science, and is the object 
of what is called Political Economy. 

The production of wealth ; the extraction of the instruments of 
human subsistence and enjoyment from the materials of the globe, ■ 
is evidently not an arbitrary thing. It has its necessary conditions^l^ 
Of these, some are physical, depending on the properties of matter, ! 
and on the amount of knowledge of those properties possessed at the 
particular place and time. These Political Economy does not inves- ' 
tigate, but assumes ; referring for the grounds, to physical science 
or common experience. Combining with these facts of outward 
nature other truths relating to human nature, it attempts to trace 
the secondary or derivative laws, by which the production of wealth 
is determined ; in which must lie the explanation of the diversities 
of riches and poverty in the present and past, and the ground of 
whatever increase in wealth is reserved for the future. ' 

Unlike the laws of Production, those of Distribution are partly 
of human institution^xgince the manner in which wealth is distributed 
in any given society, depends on the statutes or usages therein 
obtaining. But though governments or nations have the power 
of deciding what institutions shall exist, they cannot arbitrarily 
determine how those institutions shall work. The conditions on 
which the power they possess over the distribution of wealth is 
dependent, and the manner in which the distribution is effected 
by the various modes of conduct which society may think fit to 
adopt, are as much a subject for scientific enquiry as any of the 
physical laws of nature. 

The laws of Production and Distribution, and some of the practical 
consequences deducible from them, are the subject of the following 
treatise. 



BOOK I 
PRODUCTION 

CHAPTER I 

OF THE REQUISITES OF PRODUCTION 

§ 1. The requisites of production are two : labour, and ap- 
propriate natural objects. 

Labour is either bodily or mental ; or, to express the distinction 
more comprehensively, either muscular or nervous ; and it is neces- 
sary to include in the idea, not solely the exertion itself, but all feel- 
ings of a disagreeable kind, all bodily inconvenience or mental 
annoyance, connected with the employment of one's thoughts, or 
muscles, or both, in a particular occupation.^yOf the other requisite 
— appropriate natural objects — it is to be remarked, that some 
objects exist or grow up spontaneously, of a kind suited to the supply 
of human wants. There are caves and hollow trees capable of 
affording shelter ; fruit, roots, wild honey, and other natural pro- 
ducts, on which human life can be supported ; but even here a 
considerable quantity of labour is generally required, not for the pur- 
pose of creating, but of finding and appropriating them. In all but 
these few and (except in the very commencement of human society) 
unimportant cases, the objects supplied by nature are only instru- 
mental to human wants, after having undergone some degree of 
transformation by human exertion. Even the wild animals of the 
forest and of the sea, from which the hunting and fishing tribes 
derive their sustenance — though the labour of which they are the sub- 
ject is chiefly that required for appropriating them — must yet, before 
they are used as food, be killed, divided into fragments, and subjected 
in almost all cases to some culinary process, which are operations 



REQUISITES OF PRODUCTION 23 

requiring a certain degree of human labour. The amount of trans- 
formation which natural substances undergo before being brought 
into the shape in which they are directly applied to human use 
varies from this or a still less degree of alteration in the nature and 
appearance of the object, to a change so total that no trace is per- 
ceptible of the original shape and structure. There is little resem- 
blance between a piece of a mineral substance found in the earth, and 
a plough, an axe, or a saw. There is less resemblance between 
porcelain and the decomposing granite of which it is made, or 
between sand mixed with sea-weed, and glass. The difierence 
is greater still between the fleece of a sheep, or a handful of cotton 
seeds, and a web of muslin or broad cloth ; and the sheep and seeds 
themselves are not spontaneous growths, but results of previous 
labour and care. In these several cases the ultimate product is, so 
extremely dissimilar to the substance supplied by nature, that in 
the custom of language nature is represented as only furnishing 
materials. 

Nature, however, does more than supply materials ; she alsa 
supplies powers. The matter of the globe is not an inert recipient 
of forms and properties impressed by human hands ; it has active 
energies by which it co-operates with, and may even be used as a 
substitute for, labour. In the early ages people converted their 
corn into flour by pounding it between two stones ; they next hit 
on a contrivance which enabled them, by turning a handle, to make 
one of the stones revolve upon the other ; and this process, a little 
improved, is still the common practice of the East. The muscular 
exertion, however, which it required, was very severe and exhausting, 
insomuch that it was often selected as a punishment for slaves who 
had ofiended their masters. When the time came at which the 
labour and sufierings of slaves were thought worth economizing, the 
greater part of this bodily exertion was rendered' unnecessary, 
by contriving that the upper stone should be made- to revolve upon 
the lower, not by human strength, but by the force of the wind or of 
falling water. In this case, natural agents, the wind or the gravita- 
tion of the water, are made to do a portion of the work previously 
done by labour. 

§ 2. Cases like this, in which a certain amount of labour has 
been dispensed with, its work being devolved upon some natural 
agent, are apt to suggest an erroneous notion of the comparative 
functions of labour and natural powers ; as if the co-operation of 



24 BOOK I. CHAPTER I. § 2 

those powers with human industry were hmited to the cases in which 
they are made to perform what would otherwise be done by labour ; 
as if, in the case of things made (as the phrase is) by hand, nature 
only furnished passive materials. This is an illusion. The powers 
of nature are as actively operative in the one case as in the other. 
A workman takes a stalk of the flax or hemp plant, splits it into 
separate fibres, twines together several of these fibres with his 
fingers, aided by a simple instrument called a spindle ; having 
thus formed a thread, he lays many such threads side by side, and 
places other similar threads directly across them, so that each passes 
alternately over and under those which are at right angles to it ; 
this part of the process being facilitated by an instrument called 
a shuttle. He has now produced a web of cloth, either linen or 
sack-cloth, according to the material. He is said to have done 
this by hand, no natural force being supposed to have acted in 
concert with him. But by what force is each step of this operation 
rendered possible, and the web, when produced, held together ? 
By the tenacity, or force of cohesion, of the fibres : which is one 
of the forces in nature, and which we can measure exactly against 
other mechanical forces, and ascertain how much of any of them it 
sufiices to neutralize or counterbalance. 

If we examine any other case of what is called the action of man 
upon nature, we shall find in like manner that the powers of nature, 
or in other words the properties of matter, do all the work, when 
once objects are put into the right position. This one operation, 
of putting things into fit places for being acted upon by their own 
internal forces, and by those residing in other natural objects, is all 
that man does, or can do, with matter. He only moves one thing to 
or from another. He moves a seed into the ground ; and the 
natural forces of vegetation produce in succession a root, a stem, 
leaves, flowers, and fruit. He moves an axe through a tree, and it 
falls by the natural force of gravitation ; he moves a saw through 
it, in a particular manner, and the physical properties by which 
a softer substance gives way before a harder, make it separate into 
planks, which he arranges in certain positions, with nails driven 
through them, or adhesive matter between them, and produces a 
table, or a house. He moves a spark to fuel, and it ignites, and by 
the force generated in combustion it cooks the food, melts or softens 
the iron, converts into beer or sugar the malt or cane-juice, which 
he has previously moved to the spot. He has no other means 
of acting on matter than by moving it. Motion, and resistance to 



REQUISITES OF PRODUCTION .25 

motion, are the only things which his muscles are constructed for. 
By muscular contraction he can create a pressure on an outward 
object, which, if sufficiently powerful, will set it in motion, or if it be 
already moving, will check or modify or altogether arrest its motion, 
and he can do no more. But this is enough to have given all 
the command which mankind have acquired over natural forces 
immeasurably more powerful than themselves ; a command which, 
great as it is already, is without doubt destined to become 
indefinitely greater. He exerts this power either by avaihng himself 
of natural forces in existence, or by arranging objects in those 
mixtures and combinations by which natural forces are generated ; 
as when by putting a lighted match to fuel, and water into a 
boiler over it, he generates the expansive force of steam, a power 
which has been made so largely available for the attainment of 
human purposes.* 

Labour, then, in the physical world, is always and solely employed 
in putting objects in motion ; the properties of matter, the laws 
of nature, do the rest. The skill and ingenuity of human beings are 
chiefly exercised in discovering movements, practicable by their 
powers, and capable of bringing about the efiects which they desire. 
But, while movement is the only effect which man can immediately 
and directly produce by his muscles, it is not necessary that he should 
produce directly by them all the movements which he requires. The 
first and most obvious substitute is the muscular action of cattle : 
by degrees the powers of inanimate nature are made to aid in this 
too, as by making the wind, or water, things already in motion, 
communicate a part of their motion to the wheels, which before 
that invention were made to revolve by muscular force. This 
service is extorted from the powers of wind and water by a set of 
actions, consisting like the former in moving certain objects into 
certain positions in which they constitute what is termed a machine ; 
but the muscular action necessary for this is not constantly renewed 
but performed once for all, and there is on the whole a great economy 
of labour. 

§ 3. Some writers have raised the question, whether nature 
gives more assistance to labour in one kind of industry or in another ; 
and have said that in some occupations labour does most, in others 

* This essential and primary law of man's power over nature was, I believe, 
first illustrated and made prominent as a fundamental principle of Political 
Economy, in the first chapter of Mr. [James] Mill's Elements. 



26 BOOR I. CHAPTER I. § 4 

nature most. In tMs, however, there seems much confusion of 
ideas. The part which nature has in any work of man, is indefinite 
and incommensurable. It is impossible to decide that in any one 
thing nature does more than in any other. One cannot even say 
that labour does less. Less labour may be required ; but if that 
which is required is absolutely indispensable, the result is just as 
much the product of labour, as of nature. When two conditions 
are equally necessary for producing the effect at aU, it is unmeaning 
to say that so much of it is produced by one and so much by the 
other ; it is Hke attempting to decide which half of a pair of scissors 
has most to do in the act of cutting ; or which of the factors, five 
and six, contributes most to the production of thirty. The form 
which this conceit usually assumes, is that of supposing that nature 
lends more assistance to human endeavours in agriculture than in 
manufactures. This notion, held by the French Economistes, and 
from which Adam Smith was not free, arose from a misconception 
of the nature of rent. The rent of land being a price paid for a 
natural agency, and no such price being paid in manufactures, these 
writers imagined that since a price was paid, it was because there 
was a greater amount of service to be paid for : whereas a better 
consideration of the subject would have shown that the reason 
why the use of land bears a price is simply the Hmitation of its 
quantity, and that if air, heat, electricity, chemical agencies, and the 
other powers of nature employed by manufacturers, were spar- 
ingly supplied, and could, like land, be engrossed and appropriated, 
a rent could be exacted for them also. 

§ 4. This leads to a distinction which we shall find to be of 
primary importance. Of natural powers, some are unhmited, others 
limited in quantity. By an unlimited quantity is of course not meant 
literally, but practically unlimited : a quantity beyond the use 
which can in any, or at least in present circumstances, be made of it. 
Land is, in some newly settled countries, practically unlimited in 
quantity : there is more than can be used by the existing population 
of the country, or by any accession Hkely to be made to it for genera- 
tions to come. But even there, land favourably situated with 
regard to markets or means of carriage is generally Hmited in 
quantity : there is not so much of it as persons would gladly occupy 
and cultivate, or otherwise turn to use. In all old countries, land 
capable of cultivation, land at least of any tolerable fertihty, must 
be ranked among agents Hmited in quantity. Water, for ordinary 



REQUISITES OF PRODUCTION 27 

purposes, on the banks of rivers or lakes, may be regarded as of 
unlimited abundance ; but if required for irrigation, it may even 
there be insufficient to supply all wants, while in places which depend 
for their-eonsumption on cisterns or tanks, or on wells which are 
not copious, or are Hable to fail, water takes its place among things 
the quantity of which is most strictly Hmited. Where water itself 
is plentiful, yet water-power, i.e. a fall of water appHcable by its 
mechanical force to the service of industry, may be exceedingly 
limited, compared with the use which would be made of it if it were 
more abundant. Coal, metalUc ores, and other useful substances 
found in the earth, are still more Umited than land. They are not 
only strictly local but exhaustible ; though, at a given place and 
time, they may exist in much greater abundance than would be 
appHed to present use even if they could be obtained gratis. Fish- 
eries, in the sea, are in most cases a gift of nature practically unlimited 
in amount ; but the Arctic whale fisheries have long been insufficient 
for the demand which exists even at the very considerable price 
necessary to defray the cost of appropriation : and the immense 
extension which the Southern fisheries have in consequence assumed, 
is tending to exhaust them Hkewise. River fisheries are a natural 
resource of a very Hmited character, and would be rapidly exhausted, 
if allowed to be used by every one without restraint. Air, even 
that state of it which we term wind, may, in most situations, be 
obtained in a quantity sufficient for every possible use ; and so 
likewise, on the sea coast or on large rivers, may water carriage : 
though the wharfage or harbour-room appHcable to the service 
of that mode of transport is in many situations far short of what 
would be used if easily attainable. 

It will be seen hereafter how much of the economy of society 
depends on the limited quantity in which some of the most important 
natural agents exist, and more particularly land. For the present 
I shaU only remark, thatfso long as the quantity of a natural agent 
is practicaUy unHmited, it cannot, unless susceptible of artificial 
monopoly, bear any value in the market, since no one wiU give any- 
thing for what can be obtained gratis. But as soon as a Hmitation 
becomes practically operative ; as soon as there is not so much of 
the thing to be had, as would be appropriated and used if it could 
be obtained for asking ; the ownership or use of the natural agent 
acquires an exchangeable value. When more water power is wanted 
in a particular district, than" there are falls of water to supply it, 
persons will give an equivalent for the use of a faU of water. When 



28 BOOK I. CHAPTER I. § 4 

there is more land wanted for cultivation than a place posyesses, or 
than it possesses of a certain quaUty and certain advantages of 
situation, land of that quahty and situation may be sold for a price, 
or let for an annual rent. This subject will hereafter be discussed at 
length ; but it is often useful to anticipate, by a brief suggestion, 
principles and deductions which we have not yet reached the place for 
exhibiting and illustrating fulljo 



CHAPTER 11 

OF LABOUR AS AN AGENT OF PRODUCTION 

§ 1. The labour wliicli terminates in the production of an 
atticle fitted for some human use is either employed directly 
about the thing, or in previous operations destined to facilitate, 
perhaps essential to the possibiHty of, the subsequent ones. In 
making bread, for example, the labour employed about the thing 
itself is that of the baker ; but the labour of the miller, though 
employed directly in the production not of bread but of flour, is 
equally part of the aggregate sum of labour by which the bread 
is produced ; as is also the labour of the sower and of the reaper. 
Some may think that all these persons ought to be considered as 
employing their labour directly about the thing ; the corn, the 
flour, and the bread being one substance in three different states. 
Without disputing about this question of mere language, there 
is still the ploughman, who prepared the ground for the seed, and 
whose labour never came in contact with the substance in any of 
its states ; and the plough-maker, whose share in the result was 
still more remote. All these persons ultimately derive the remunera- 
tion of their labour from the bread, or its price : the plough-maker 
as much as the rest ; for since ploughs are of no use except for 
tilhng the soil, no one would make or use ploughs for any other 
reason than because the increased retiirns, thereby obtained from 
the ground, afforded a source from which an adequate equivalent 
could be assigned for the labour of the plough-maker. If the 
produce is to be used or consumed in the form of bread, it is from the 
bread that this equivalent must come. The bread must suffice 
to remunerate all these labourers, and several others ; such as 
the carpenters and bricklayers who erected the farm-buildings ; 
the hedgers and ditchers who made the fences necessary for the 
protection of the crop ; the miners and smelters who extracted 
or prepared the iron of which the plough and other implements 



30 BOOK I. CHAPTER II. § 1 

were made. These, however, and the plough-maker, do not depend 
for their remuneration upon the bread made from the produce of 
a single harvest, but upon that made from the produc" of all the 
harvests which are successively gathered until the plough, or the 
buildings and fences, are worn out. We must add yet another 
kind of labour ; that of transporting the produce from the place 
of its production to the place of its destined use : the labour of 
carrying the corn to market, and from market to the miller's, the 
flour from the miller's to the baker's, and the bread from the 
baker's to the place of its final consumption. This labour is 
sometimes very considerable : flour is [1848] transported to England 
from beyond the Atlantic, corn from the heart of Eussia ; and in 
addition to the labourers immediately employed, the waggoners 
and sailors, there are also costly instruments, such as ships, in the 
construction of which much labour has been expended : that labour, 
however, not depending for its whole remuneration upon the bread, 
but for a part only ; ships being usually, during the course of their 
existence, employed in the transport of many different kinds of 
commodities. 

j To estimate, therefore, the labour of which any given com- 
modity is the result is far from a simple operation. The items 
in the calculation are very numerous — as it may seem to some 
persons, infinitely so ; for if, as a part of the labour employed in 
making bread, we count the labour of the blacksmith who made 
the plough, why not also (it may be asked) the labour of making 
the tools used by the blacksmith, and the tools used in making 
those tools, and so back to the origin of things ? But after mounting 
one or two steps in this ascending scale, we come into a region of 
fractions too minute for calculation. Suppose, for instance, that 
the same plough will last, before being worn out, a dozen years. 
Only one-twelfth of the labour of making the plough must be placed 
to the account of each year's harvest. A twelfth part of the labour 
of making a plough is an appreciable quantity. But the same 
set of tools, perhaps, suffice to the plough-maker for forging a 
hundred ploughs, which serve during the twelve years of their 
existence to prepare the soil of as many different farms. A twelve- 
hundredth part of the labour of making his tools, is as much, 
therefore, as has been expended in procuring one year's harvest 
of a single farm : and when this fraction comes to be further appor- 
tioned among the various sacks of corn and loaves of bread, it is 
seen at once that such quantities are not worth taking into the 



LABOUR AS AN AGENT OF PRODUCTION 31 

account for any practical purpose connected with the commodity. It 
is true that, if the tool-maker had not laboured, the corn and bread 
never would have been produced ; but they will not be sold a 
tenth part of a farthing dearer in consideration of his labour. 

§ 2. Another of the modes in which labour is indirectly or 
remotely instrumental to the production of a thing requires par- 
ticular notice : namely, when it is employed in producing subsistence 
to maintain the labourers while they are engaged in the production. 
This previous employment of labour is an indispensable condition 
to every productive operation, on any other than the very smallest 
scale. Except the labour of the hunter and fisher, there is scarcely 
any kind of labour to which the returns are immediate. Productive 
operations require to be continued a certain time, before their 
. fruits are obtained. Unless the labourer, before commencing his 
work, possesses a store of food, or can obtain access to the stores 
of some one else, in sufficient quantity to maintain him until the 
production is completed, he can undertake no labour but such as 
can be carried on at odd intervals, concurrently with the pursuit of 
his subsistence. He cannot obtain food itself in any abundance ; 
for every mode of so obtaining it requires that there be already 
food in store. Agriculture only brings forth food after the lapse of 
months ; and though the labours of the agriculturist are not 
necessarily continuous during the whole period, they must occupy 
a considerable part of it. Not only is agriculture impossible without 
food produced in advance, but there must be a very great quantity 
in advance to enable any considerable community to support itself 
wholly by agriculture. A country hke England or France is only 
able to carry on the agriculture of the present year, because that 
6f past years has provided, in those countries or somewhere else, 
sufficient food to support their agricultural population until the 
next harvest. They are only enabled to produce so many other 
things besides food, because the food which was in store at the 
close of the last harvest suffices to maintain not only the agricultural 
labourers, bilt a large industrious population besides. 

The labour employed in producing this stock of subsistence 
forms a great and important part of the past labour which has 
been necessary to enable present labour to be carried on. But 
there is a difference, requiring particular notice, between this and 
the other kinds of previous or preparatory labour. The miller, the 
reaper, the ploughman, the plough-maker, the waggoner and 



32 BOOK L CHAPTER 11. § 2 

waggon-maker, even the sailor and ship -builder when employed, 
derive their remuneration from the ultimate product — the bread 
made from the corn on which they have severally operated, or 
supplied the instruments for operating. The labour that produced 
the food which fed all these labourers is as necessary to the ultimate 
result, the bread of the present harvest, as any of those other portions 
of labour ; but is not, like them, remunerated from it. That 
previous labour has received its remuneration from the previous 
food. In order to raise any product, there are needed labour, 
tools, and materials, and food to feed the labourers. But the 
tools and materials are of no use except for obtaining the product, or 
at least are to be applied to no other use, and the labour of their 
construction can be remunerated only from the product when 
obtained. The food, on the contrary, is intrinsically useful, and is 
apphed to the direct use of feeding human beings. The labour 
expended in producing the food, and recompensed by it, needs 
not be remunerated over again from the produce of the subsequent 
labour which it has fed. If we suppose that the same body of 
labourers carried on a manufacture, and grew food to sustain 
themselves while doing it, they have had for their trouble the food 
and the manufactured article ; but if they also grew the material 
and made the tools, they have had nothing for that trouble but the 
manufactured article alone. 

The claim to remuneration founded on the possession of food, 
available for the maintenance of labourers, is of another kind ; 
remuneration for abstinence, not for labour. If a person has a store 
of food, he has it in his power to consume it himself in idleness, 
or in feeding others to attend on him, or to fight for him, or to 
sing or dance for him. If, instead of these things, he gives it to 
productive labourers to support them during their work, he can, 
and naturally will, claim a remuneration from the produce. He 
will not be content with simple repayment ; if he receives merely that, 
he is only in the same situation as at first, and has derived no 
advantage from delaying to apply his savings to his own b^enefit or 
pleasure. He wiU look for some equivalent for this forbearance : 
he will expect his advance of food to come back to him with an 
increase, called in the language of business, a profit ; and the hope 
of this profit will generally have been a part of the inducement 
which made him accumulate a stock, by economizing in his own 
consumption ; or, at any rate, which made him forego the applica- 
tion of it, when accumulated, to his personal ease or satisfaction. 



:iii 



LABOUR AS AN AGENT OF PRODUCTION 33 

The food also which, maintained other workmen while producing 
the tools or materials must have been provided in advance by some 
one, and he, too, must have his profit from the ultimate product ; 
but there is this difference, that here the ultimate product has 
to supply not only the profit, but also the remuneration of the labour. 
The tool-maker (say, for instance, the plough-maker) does not 
indeed usually wait for his payment until the harvest is reaped ; 
the farmer advances it to him, and steps into his place by becoming 
the owner of the plough. Nevertheless, it is from the harvest that 
the payment is to come; since the farmer would not undertake 
this outlay unless he expected that the harvest would repay him, 
and with a profit too on this fresh advance ; that is, unless the 
harvest would yield, besides the remuneration of the farm labourers 
(and a profit for advancing it), a sufficient residue to remunerate 
the plough -maker's labeurers, give the plough-maker a profit, 
and a profit to the farmer on both. 

§ 3. From these considerations it appears, that in an enumera- 
tion and classification of the kinds of industry which are intended 
for the indirect or remote furtherance of other productive labour, 
3 we need not include the labour of producing subsistence or other 
^ necessaries of Hfe to be consumed by productive labourers ; for the 
main end and purpose of this labour is the subsistence itself ; and 
though the possession of a store of it enables other work to be done, 
this is but an incidental consequence. The remaining modes in 
which _labour is indirect ly instrum ental to pro du ction ma y ka 
arran_ged under five heads. """""' ^ ~" 

First : Labour employed in producing materials, on which 
industry is to be afterwards employed. This is, in many cases, 
a labour of mere appropriation ; extractive industry, as it has 
been aptly named by M. Dunoyer. The labour of the miner, 
for example, consists of operations for digging out of the earth 
substances convertible by industry into various articles fitted 
for human use. Extractive industry, however, is not confined 
to the extraction of materials. Coal, for instance, is employed, 
not only in the process of industry, but in directly warming human 
beings. When so used, it is not a material of production, but is 
itself the ultimate product. So, also, in the case of a mine of precious 
stones. These are to some small extent employed in the productive 
arts, as diamonds by the glass-cutter, emery and corundum for 
polishing, but their principal destination, that of ornament, is a 



34 BOOK I. CHAPTER II. § 4 

direct use ; though, they commonly require, before being so used, 
some process of manufacture, which may perhaps warrant our 
regarding them as materials. Metallic ores of all sorts are materials 
merely. 

Under the head, production of materials, we must include 
the industry of the wood-cutter, when employed in cutting and 
preparing timber for building, or wood for the purposes of the 
carpenter's or any other art. In the forests of America, Norway, 
Germany, the Pyrenees and Alps, this sort of labour is largely 
employed on trees of spontaneous growth. In other cases, we must 
add to the labour of the wood- cutter that of the planter and 
cultivator. 

Under the same head are also comprised the labours of the 
agriculturist in growing flax, hemp, cotton, feeding silkworms, 
raising food for cattle, producing bark, dye-stuffs, some oleaginous 
plants, and many other things only useful because required in 
other departments of industry. So, too, the labour of the hunter, 
as far as his object is furs or feathers ; of the shepherd and the 
cattle-breeder, in respect of wool, hides, horn, bristles, horse-hair, 
and the Hke. The things used as materials in some process or other 
of manufacture are of a most miscellaneous character, drawn from 
almost every quarter of the animal, vegetable, and mineral kingdoms. 
And besides this, the finished products of many branches of industry 
are the materials of others. The thread produced by the spinner 
is applied to hardly any use except as material for the weaver. 
Even the product of the loom is chiefly used as material for the 
fabricators of articles of dress or furniture, or of further instruments 
of productive industry, as in the case of the sail-maker. The currier 
and tanner find their whole occupation in converting raw material 
into what may be termed prepared material. In strictness of 
speech, almost all food, as it comes from the hands of the agri- 
culturist, is nothing more than material for the occupation of the 
baker or the cook. 

§ 4. The second kind of indirect labour is that employed in 
making tools or implements for the assistance of labour. I use 
these terms in their most comprehensive sense, embracing all 
permanent instruments or helps to production, from a flint and 
steel for striking a Hght, to a steam-ship, or the most complex 
apparatus of manufacturing machinery. There may be some 
hesitation where to draw the line between implements and materials ; 



LABOUR AS AN AGENT OF PRODUCTION 35 

and some things used in production (such as fuel) would scarcely 
in common language be called by either name, popular phraseology 
being shaped out by a different class of necessities from those of 
scientific exposition. To avoid a multiplication of classes and 
denominations answering to distinctions of no scientific importance, 
pohtical economists generally include all things which are used as 
immediate means of production (the means which are not immediate 
will be considered presently) either in the class of implements or in 
that of ^-matcf ials. 'Perhaps the Kne is most usually and most con- 
veniently dra^m, by considering as a material every instrument 
of production which can only be used once, being destroyed (at 
least as an Instrument for the purpose in hand) by a single employ- 
ment. Thus fuel, once burnt, cannot be again used as fuel ; what 
can be so used is only any portion which has remained unburnt 
the first time. And not only it cannot be used without being con- 
sumed, but it is only useful by being consumed ; for if no part of 
the fuel were destroyed, no heat would be generated. A fleece, 
again, is destroyed as a fleece by being spun into thread ; and the 
thread cannot be used as thread when woven into cloth. But an 
axe is not destroyed as an axe by cutting down a tree : it may be 
used afterwards to cut down a hundred or a thousand more ; and 
though deteriorated in some small degree by each use, it does not do 
its work by being deteriorated, as the coal and the fleece do theirs 
by being destroyed ; on the contrary, it is the better instrument the 
better it resists deterioration. There are some things, rightly classed 
as materials, which may be used as such a second and a third time, 
but not while the product to which they at first contributed remains 
in existence. The iron which formed a tank or a set of pipes may be 
melted to form a plough or a steam-engine ; the stones with which 
a house was built may be used after it is pulled down, to build 
another. But this cannot be done while the original product 
subsists ; their function as materials is suspended, until the exhaus- 
tion of the first use. Not so with the things classed as implements ; 
they may be used repeatedly for fresh work, until the time, sometimes 
very distant, at which they are worn out, while the work already 
done by them may subsist unimpaired, and when it perishes, does 
so by its own laws, or by casualties of its own.* 

* The able and friendly reviewer of this treatise in the Edinburgh Review 
(October 1848) conceives the distinction between materials and implements 
rather differently : proposing to consider as materials " all the things which, 
after having undergone the change implied in production, are themselves 



36 BOOK I. CHAPTER 11. § 5 

The only practical difference of mucli importance arising from 
the distinction between materials and implements is one which has 
attracted our attention in another case. Since materials are 
destroyed as such by being once used, the whole of the labour 
required for their production, as well as the abstinence of the person 
who supplied the means for carrying it on, must be remunerated 
from the fruits of that single use. Implements, on the contrary, 
being susceptible of repeated employment, the whole of the products 
which they are instrumental in bringing into existence are a fund 
which can be drawn upon to remunerate the labour of their construc- 
tion, and the abstinence of those by whose accumulations that 
labour was supported. It is enough if each product contributes 
a fraction, commonly an insignificant one, towards the remuneration 
of that labour and abstinence, or towards indemnifying the imme- 
diate producer for advancing that remuneration to the person who 
produced the tools. 

§ 5. Thirdly : Besides materials for industry to employ itself 
on, and implements to aid it, provision must be made to prevent 
its operations from being disturbed, and its products injured, either 
by the destroying agencies of nature, or by the violence or rapacity 
of men. This gives rise to another mode in which labour, not 
employed directly about the product itself, is instrumental to its 
production ; namely, when employed for the protection of industry. 
Such is the object of all buildings for industrial purposes ; all 
manufactories, warehouses, docks, granaries, barns, farm-buildings 
devoted to cattle, or to the operations of agricultural labour. 
I exclude those in which the labourers live, or which are destined 
for their personal accommodation : these, like their food, supply 
actual wants, and must be counted in the remuneration of their 
labour. There are many modes in which labour is still more directly 
applied to the protection of productive operations. The herdsman 
has little other occupation than to protect the cattle from harm : 
the positive agencies concerned in the realization of the product 
go on nearly of themselves. I have already mentioned the labour 

matter of exchange," and as implements (or instruments) " the things which 
are employed in producing that change, but do not themselves become part of 
the exchangeable result." According to these definitions, the fuel consumed 
in a manufactory would be considered, not as a material, but as an instrument. 
This use of the terms accords better than that proposed in the text with the 
primitive physical meaning of the word " material " ; but the distinction od 
which it is grounded is one almost in^elevant to political economy. 



LABOUR AS AN AGENT OF PRODUCTION 37 

of the Ledger and ditcher, of the builder of walls or dykes. To 
these must be added that of the soldier, the poUceman, and the 
judge. These functionaries are not indeed employed exclusively in 
the protection of industry, nor does their payment constitute, to 
the individual producer, a part of the expenses of production. 
But they Are paid- from. the taxes, which are derived from the produce 
of industry ; and in any tolerably governed country they render to 
ite^ operations a service far more than equivalent to the cost. To 
society at large they are therefore part of the expenses of production ; 
and if the returns to production were not sufficient to maintain these 
labourers in addition to all the others required, production, at least 
in that form and manner, could not take place. Besides, if the 
protection which the government affords to the operations of indus- 
try were not afforded, the producers would be under a necessity 
of either withdrawing a large share of their time and labour from 
production, to employ it in defence, or of engaging armed men to 
defend them ; all which labour, in that case, must be directly 
remunerated from the produce ; and things which could not pay 
for this additional labour, would not be produced. -Under the 
present arrangements, the product pays its quota towards the, 
same protection, and, notwithstanding the waste and prodigality 
incident to government expenditure, obtains it of better quality 
at a much smaller cost. 

§ 6. Fourthly : There is a very great amount of labour em- 
ployed, not in bringing the product into existence, but in rendering 
it, when in existence, accessible to those for whose use it is intended. 
Many important classes of labourers find their sole employment in 
some function of this kind. There is first the whole class of carriers, 
by land or water : muleteers, waggoners, bargemen, sailors, wharf- 
men, coalheavers, porters, railway estabHshments, and the like. 
Next, there are the constructors of all the implements of transport ; 
ships, barges, carts, locomotives, &c., to which must be added roads, 
canals, and railways. Koads are sometimes made by the govern- 
ment, and opened gratuitously to the pubUc ; ' but the labour of 
making them is not the less paid for from the produce. Each 
producer, in paying his quota of the taxes levied generally for the 
construction of roads, pays for the use of those which conduce to 
his convenience ; and if made with any tolerable judgment, they 
increase the returns to his industry by far more than an equivalent 
amount. 



S8 BOOK I. CHAPTER 11. § 6 

Anotlier numerous class of labourers employed in rendering tlie 
things produced accessible to their intended consumers is the class 
of dealers and traders, or, as they may be termed, distributors. 
There would be a great -waste of time and trouble, and an incon- 
venience often amounting to impracticability, if consumers could 
only obtain the articles they want by treating directly with the 
producers. Both producers and consumers are too much scattered, 
and the latter often at too great a distance from the former. To 
diminish this loss of time and labour, the contrivance of fairs and 
markets was early had recourse to, where consumers and producers 
might periodically meet, without any intermediate agency ; and 
this plan answers tolerably well for many articles, especially agri- 
cultural produce, agriculturists having at some seasons a certain 
quantity of spare time on their hands. But even in this case, 
attendance is often very troublesome and inconvenient to buyers 
who have other occupations, and do not live in the immediate 
vicinity ; while, for all articles the production of which requires 
continuous attention fi'om the producers, these periodical markets 
must be held at such considerable intervals, and the wants of the 
consumers must either be provided for so long beforehand, or 
must remain so long unsupplied, that even before the resources of 
society admitted of the establishment of shops, the supply of these 
wants fell universally into the hands of itinerant dealers ; the pedlar, 
who might appear once a month, being preferred to the fair, which 
only returned once or twice a year. In country districts, remote 
from towns or large villages, the industry of the pedlar is not yet 
wholly superseded. But a dealer who has a fixed abode and jfixed 
customers is so much more to be depended on, that consumers 
prefer resorting to him if he is conveniently accessible ; and dealers 
therefore find their advantage in establishing themselves in every 
locality where there are sufficient consumers near at hand to afford 
them a remuneration. 

In many cases the producers and dealers are the same persons, 
at least as to the ownership of the funds and the control of the 
operations. The tailor, the shoemaker, the baker, and many other 
tradesmen, are the producers of the articles they deal in, so far as 
regards the last stage in the production. This miion, however, of 
the functions of manufacturer .and retailer is only expedient when 
the article can advantageously be made at or near the place conveni- 
ent for retaihng it, and is, besides, manufactured and sold in small 
parcels. When things have to be brought from a distance, the same 



LABOUR AS AN AGENT OF PRODUCTION 39 

person cannot eSectually superintend both the making and the 
retaihng of them ; when they are best and most cheaply made on a 
large scale, a single manufactory requires so many local channels 
to carry off its supply, that the retailing is most conveniently 
delegated to other agency ; and even shoes and coats, when they are 
to be furnished in large quantities at once, as for the supply of a regi- 
ment or of a workhouse, are usually obtained not directly from the 
producers, but from intermediate dealers, who make it their business 
to ascertain from what producers they can be obtained best and 
cheapest. Even when things are destined to be at last sold by retail, 
convenience soon creates a class of wholesale dealers. When pro- 
ducts and transactions have multiphed beyond a certain point ; 
when one manufactory supplies many shops, and one shop has often 
to obtain goods from many different manufactories, the loss of time 
and trouble both to the manufacturers and to the retailers by treating 
directly with one another makes it more convenient to them to treat 
with a smaller number of great dealers or merchants, who only buy 
to sell again, collecting goods from the various producers and 
distributing them to the retailers, to be by them further distributed 
among the consumers. Of these various elements is composed the 
Distributing Class, whose agency is supplementary to that of the 
Producing Class : and the produce so distributed, or its price, is 
the source from which the distributors are remunerated for their 
exertions, and for the abstinence which enabled them to advance 
the funds needful for the business of distribution. 

§ 7. We have now completed the enumeration of the modes 
in which labour employed on external nature is subservient to 
production. But there is yet another mode of employing labour, 
which conduces equally, though still more remotely, to that end : 
this is, labour of which the subject is human beings. Every human 
being has been brought up from infancy at the expense of much 
labour to some person or persons, and if this labour, or part of it, 
had not been bestowed, the child would never have attained the age 
and strength which enabled him to become a labourer in his turn. 
To the community at large, the labour and expense of rearing its 
infant population form a part of the outlay which is a condition of 
production, and which is to be replaced with increase from the 
future produce of their labour. By the individuals, this labour and 
expense are usually incurred from other motives than to obtain such 
ultimate return, and, for most purposes of political economy, need 



40 BOOK I. CHAPTER IL § 8 

not be taken into account as expenses of production. But the teckz_.^ 
nical or industrial education of tlie community ; tlie labour employed 
in learning and in teaching the arts of production, in acquiring and 
communicating skill in those arts ; this labour is really, and in 
general solely, undergone for the sake of the greater or more valu- 
able produce thereby attained, and in order that a remuneration, 
equivalent or more than equivalent, may be reaped by the learner, 
besides an adequate remuneration for the labour of the teacher, 
when a teacher has been employed. 

As the labour which confers productive powers, whether of hand 
or of head, may be looked upon as part of the labour by which 
society accomphshes its productive operations, or in other words, 
as part of what the produce costs to society, so too may the labour 
employed in keeping up productive powers ; in preventing them 
from being destroyed or weakened by accident or disease. The 
labour _Qf...a physician or surgeon, when made use_ofJby persons 
engaged in industry, must be regarded in the economy of society 
as a sacrifice incurred, to preserve from perishing by death or 
infirmity that portion of the productive resources of society which 
is fixed in the lives and bodily or mental powers of its productive 
members. To the individuals, indeed, this forms but a part, some- 
times an imperceptible part, of the motives that induce them to 
submit to medical treatment : it is not principally from economical 
motives that persons have a limb amputated, or endeavour to be 
cured of a fever ; though, when they do so, there is generally sufficient 
inducement for it even on that score alone. This is, therefore, 
one of the cases of labour and outlay which, though conducive to 
production, yet not being incurred for that end, or for the sake of 
the returns arising from it, are out of the sphere of most of the 
general propositions which pohtical economy has occasion to assert 
respecting productive labour : though, when society and not the 
individuals are considered, this labour and outlay must be regarded 
as part of the advance by which society effects its productive 
operations, and for which it is indemnified by the produce. 

§ 8. Another kind of labour, usually classed as mental, but 
conducing to the ultimate product as directly, though not so imme- 
diately, as manual labour itself, is the labour of the inventors oJL 
industrial processes. I say, usually classed as mental, because in 
reahty it is not exclusively so. All human exertion is compounded 
of some mental and some bodily elements. The stupidest hodman, 



LABOUR AS AN AGENT OF PRODUCTION 41 

who repeats from day to day tlie mechanical act of chmbing a ladder, 
performs a function partly intellectual ; so much so, indeed, that 
the most intelligent dog or elephant could not, probably, be taught 
to do it. The dullest human being, instructed beforehand, is capable 
of turning a mill ; but a horse cannot turn it without somebody to 
drive and watch him. On the other hand, there is some bodily 
ingredient in the labour most purely mental, when it generates any 
external result. Newton could not have produced the Principia 
without the bodily exertion either of penmanship or of dictation ; 
and he must have drawn many diagrams, and written out many 
calculations and demonstrations, while he was preparing it in his 
mind. Inventors, besides the labour of their brains, generally go 
through much labour with their hands, in the models which they 
construct and the experiments they have to make before their 
idea can reahze itself successfully in act. Whether mental, however, 
or bodily, their labour is a part of that by which the production is 
brought about. The labour of Watt in contriving the steam-engine 
was as essential a part of production as that of the mechanics who 
build or the engineers who work the instrument ; and was undergone, 
no less than theirs, in the prospect of a remuneration from the 
produce. The labour of invention is often estimated and paid on 
the very same plan as that of execution. Many manufacturers of 
ornamental goods have inventors in their employment, who receive 
wages or salaries for designing patterns, exactly as others do for copy- 
ing them. All this is strictly part of the labour of production ; as 
the labour of the author of a book is equally a part of its production 
with that of the printer and binder. 

In a national, or universal point of view, the labour of the 
savant, or speculative thinker, is as much a part of production 
in the very narrowest sense, as that of the inventor of a practical 
art ; many such inventions having been the direct consequences 
of theoretic discoveries, and every extension of knowledge of the 
powers of nature being fruitful of apphcations to the purposes of 
outward Hfe. The electro-magnetic telegraph was the wonderful 
and most unexpected consequence of the experiments of (Ersted 
and the mathematical investigations of Ampere : and the modern 
art of navigation is an unforeseen emanation from the purely 
speculative and apparently merely curious enquiry, by the mathe- 
maticians of Alexandria, into the properties of three curves formed 
by the intersection of a plane surface and a cone. No limit can 
be set to the importance, even in a purely productive and material 



42 BOOR I. CHAPTER II. § 9 

point of view, of mere thought. Inasmuch, however, as these 
material fruits, though the result, are seldom the direct purpose 
of the pursuits of savants, nor is their remuneration in general derived 
from the increased production which may be caused incidentally, and 
mostly after a long interval, by their discoveries ; this ultimate 
influence does not, for most of the purposes of political economy, 
require to be taken into consideration ; and speculative thinkers 
are generally classed as the producers only of the books, or other 
useable or saleable articles, which directly emanate from them. 
But when (as in political economy one should always be prepared 
to do) we shift our point of view, and consider not individual acts, 
and the motives by which they are determined, but national and 
universal results, intellectual speculation must be looked upon as 
a mo!?t influential part of the productive labour of society, and the 
portion of its resources employed in carrying on and in remunerating 
such labour as a highly productive part of its expenditure. 

§ 9. In the foregoing survey of the modes of employing labour 
in furtherance of production, I have made little use of the popular 
distinction of industry into agricultural, manufacturing, and com- 
mercial. For, in truth, this division fulfils very badly the purposes 
of a classification. Many great branches of productive industry 
find no place in it, or not without much straining ; for example 
(not to speak of hunters or fishers) the miner, the road-maker, and 
the sailor. The limit, too, between agricultural and manufacturing 
industry cannot be precisely drawn. The miller, for instance, 
and the baker — are they to be reckoned among agriculturists, or 
among manufacturers ? Their occupation is in its nature manu- 
facturing ; the food has finally parted company with the soil before 
it is handed over to them ; this, however, might be said with equal 
truth of the thresher, the winnower, the makers of butter and 
cheese ; operations always counted as agricultural, probably because 
it is the 'custom for them to be performed by persons resident 
on the farm, and under the same superintendence as tillage. For 
many purposes all these persons, the miller and baker inclusive, 
must be placed in the same class with ploughmen and reapers. 
They are all concerned in producing food, and depend for their 
remuneration on the food produced ; when the one class abounds 
and flourishes, the others do so too ; they form collectively the 
"agricultural interest"; they render but one service to the 
community by their united labours, and are paid from one 



LABOUR AS AN AGENT OF PRODUCTION 43 

common source. Even the tillers of the soil, again, when the 
produce is not food, but the materials of what are commonly 
termed manufactures, belong in many respects to the same 
division in the economy of society as manufacturers. The 
cotton-planter of CaroHna and the wool-grower of Australia 
have more interests in common with the spinner and weaver 
than with the corn-grower. But, on the other hand, the industry 
which operates immediately upon the soil has, as we shall see 
hereafter, some properties on which many important consequences 
depend, and which distinguish it from all the subsequent stages of 
production, whether carried on by the same person or not ; from 
the industry of the thresher and winnower, as much as from that 
of the cotton-spinner. When I speak, therefore, of agricultural 
labour, I shall generally mean this, and this exclusively, unless 
the contrary is either stated or impHed in the context. The 
term manufacturing is too vague to be of much use when 
precision is required, and when I employ it, I wish to be understood, 
as intending t© speak popularly rather than scientifically. 



CHAPTER III 

OF UNPRODUCTIVE LABOUR 

§ 1. Labour is indispensable to production, but has not 
always production for its effect. There is much labour, and of 
a high order of usefulness, of which production is not the object. 
Labour has accordingly been distinguished into Productive and 
Unproductive. There has been not a little controversy among 
political economists on the question, what kinds of labour should 
be reputed to be unproductive ; and they have not always perceived, 
that there was in reality no matter of fact in dispute between them. 

Many writers have been unwilling to class any labour as pro- 
ductive, unless its result is palpable in some material object, capable 
of being transferred from one person to another. There are others 
(among whom are Mr. M'Culloch and M. Say) who, looking upon 
the word unproductive as a term of disparagement, remonstrate 
against imposing it upon any labour which is regarded as useful 
— which produces a benefit or a pleasure worth the cost. The 
labour of officers of government, of the army and navy, of physicians, 
lawyers, teachers, musicians, dancers, actors, domestic servants, 
&c., when they really accomplish what they are paid for, and are 
not more numerous than is required for its performance, ought not, 
say these writers, to be " stigmatized " as unproductive, an expression 
which they appear to regard as synonymous with wasteful or 
worthless. But this seems to be a misunderstanding of the matter 
in dispute. Production not being the sole end of human exist- 
ence, the term unproductive does not necessarily imply any 
stigma ; nor was ever intended to do so in the present case. The 
question is one of mere language and classification. Difierences 
of language, however, are by no means unimportant, even when 
not grounded on differences of opinion ; for though either of 
two expressions may be consistent with the whole truth, they 
generally tend to fix attention upon different parts of it. We 
roust therefore enter a little into the consideration of the variou§ 



UNPRODUCTIVE LABOUR 45 

meanings which may attach to the words productive and un- 
productive when applied to labour. 

In the first place, even in what is called the production of material 
objects, it must be remembered that what is produced is not the 
matter composing them. All the labour of all the human beings 
in the world could not produce one particle of matter. To weave 
broadcloth is but to re-arrange, in a peculiar manner, the particles of 
wool ; to grow corn is only to put a portion of matter called a seed, 
into a situation where it can draw together particles of matter from 
the earth and air, to form the new combination called a plant. 
Though we cannot create matter, we can cause it to assume pro- 
perties, by which, from having been useless to us, it becomes useful. 
What we produce, or desire to produce, is always, as M. Say rightly 
terms it, an utihty. ^ Labour is not creative of objects, but of utilities. 
Neither, again, do we consume and destroy the objects themselves ; 
the matter of which they were composed remains, more or less 
altered in form : what has really been consumed is only the qualities 
by which they were fitted for the purpose they have been applied 
to. It is, therefore, pertinently asked by M. Say and others — since, 
when we are said to produce objects, we only produce utihty, why 
should not all labour which produces utiHty be accounted productive ? 
Why refuse that title to the surgeon who sets a limb, the judge 
or legislator who confers security, and give it to the lapidary who 
cuts and poHshes a diamond ? Why deny it to the teacher from 
whom I learn an art by which I can gain my bread, and accord it to 
the confectioner who makes bonbons for the momentary pleasure 
of a sense of taste ? 

It is quite true that all these kinds of labour are productive 
of utiHty ; and the question which now occupies us could not 
have been a question at all, if the production of utility were enough 
to satisfy the notion which mankind have usually formed of pro- 
ductive labour. Production, and productive, are of course elliptical 
expressions, involving the idea of a something produced ; but 
this something, in common apprehension, I conceive to be, not 
utihty, but Wealth. Productive labour means labour productive 
of wealth. We are recalled, therefore, to the question touched upon 
in our first chapter, what Wealth is, and whether only material pro- 
ducts, or all useful products, are to be included in it. 

§ 2. Now the utiHties produced by labour are of three kinds. 
They are, 



46 BOOK L CHAPTER III. § 2 

First, utilities fixed and embodied in outward objects ; by- 
labour employed in investing external material things with properties 
which render them serviceable to human beings. This is the common 
case, and requires no illustration. 

Secondly, utilities fixed and embodied in human beings ; the 
labour being in this case employed in conferring on human beings 
qualities which render them serviceable to themselves and others. 
To this class belongs the labour of all concerned in education; 
not only schoolmasters, tutors, and professors, but governments, 
so far as they aim successfully at the improvement of the people ; 
moralists, and clergymen, as far as productive of benefit ; the 
labour of physicians, as far as instrumental in preserving fife and 
physical or mental efficiency ; of the teachers of bodily exercises, 
and of the various trades, sciences, and arts, together with the labour 
of the learners in acquiring them ; and all labour bestowed by 
any persons, throughout Hfe, in improving the knowledge or culti- 
vating the bodily or mental faculties of themselves or others. 

Thirdly and lastly, utilities not fixed or embodied in any object, 
but consisting in a mere ser\dce rendered ; a pleasure given, an 
inconvenience or a pain averted, during a longer or a shorter time, 
but without leaving a permanent acquisition in the improA^ed 
qualities of any person or thing ; the labour being employed in 
producing an utihty directly, not (as in the two former cases) in 
fitting some other thing to afiord an utility. Such, for example, 
is the labour of the musical performer, the actor, the public de- 
claimer or reciter, and the showman. Some good may no doubt be 
produced, and much more might be produced, beyond the moment, 
upon the feelings and disposition, or general state of enjoyment 
of the spectators ; or instead of good there may be harm ; but 
neither the one nor the other is the efiect intended, is the result 
for which the exhibitor works and the spectator pays ; nothing 
but the immediate pleasure. Such, again, is the labour of the army 
and navy ; they, at the best, prevent a country from being con- 
quered, or from being injured or insulted, which is a service, but 
in all other respects leave the country neither improved nor 
deteriorated. Such, too, is the labour of the legislator, the judge, 
the officer of justice, and all other agents of government, in their 
ordinary functions, apart from any influence they may exert on 
the improvement of the national mind. The service which they 
render is to maintain peace and security ; these compose the 
utility which they produce, It may appear to some, that carrierSj, 



UNPRODUCTIVE LABOUR 47 

and merchants or dealers, should be placed in this same class, sihce 
their labour does not add any properties to objects : but I reply that 
it does : it adds the property of being in the place where they are 
wanted, instead of being in some other place : which is a very 
useful property, and the utihty it confers is embodied in the things 
themselves, which now actually are in the place where they are 
required for use, and in consequence of that increased utility could 
be sold at an increased price, proportioned to the labour expended 
in conferring it. This labour, therefore, does not belong to the 
third class, but to the first. 

§ 3. We have now to consider which of these three classes of 
labour should be accounted productive of wealth, since that is 
what the term productive, when used by itself, must be understood 
to import. UtiHties of the third class, consisting in pleasures 
which only exist while being enjoyed, and services which only exist 
while being performed, cannot be spoken of as wealth, except by 
an acknowledged metaphor. It is essential to the idea of wealth 
to be susceptible of accumulation : things which cannot, after being 
produced, be kept for some time before being used, are never, I 
think, regarded as wealth, since however much of them may be 
produced and enjoyed, the person benefited by them is no richer, 
is nowise improved in circumstances. But there is not so distinct 
and positive a violation of usage in considering as wealth any product 
which is both useful and susceptible of accumulation. The skill, and 
the energy and perseverance, of the artisans of a country, are 
reckoned part of its wealth, no less than their tools and machinery.* 

* Some authorities look upon it as an essential element in the idea of wealth, 
that it should be capable not solely of being accumulated but of being trans- 
ferred ; and inasmuch as the valuable qualities, and even the productive 
capacities, of a human being, cannot be detached from him and passed to some 
one else, they deny to these the appellation of wealth, and to the labour 
expended in acquiring them the name of productive labour. It seems to me, 
however, that the skill of an artisan (for instance) being both a desirable 
possession, and one of a certain durability (not to say productive even of national 
wealth), there is no better reason for refusing to it the title of wealth because 
it is attached to a man, than to a coalpit or manufactory because they 
are attached to a place. Besides, if the slall itself cannot be parted with to 
a purchaser, the use of it may ; if it cannot be sold, it can be hired ; and it 
may be, and is, sold outright in all countries whose laws permit that the man 
himself should be sold along with it. Its defect of transferability does not result 
from a natural but from a legal and moral obstacle. 

The human being himself (as formerly observed) I do not class as wealth. 
He is the purpose for which wealth exists. But his acquired capacities, which 
exist only as means, and have been called into existence by labour, fall rightly, 
as it seems to me, within that designation. 



48 BOOR I. CHAPTER III. § 3 

According to this definition, we should regard all labour as pro- 
ductive which is employed in creating permanent utiHties, whether 
embodied in human beings, or in any other animate or inanimate 
objects. This nomenclature I have, in a former publication,* recom- 
mended, as most conducive to the ends of classification ; and I 
am still of that opinion. 

But in applying the term wealth to the industrial capacities 
of human beings, there seems always, in popular apprehension, 
to be a tacit reference to material products. The skill of an artisan 
is accounted wealth, only as being the means of acquiring wealth 
in a material sense ; and any quahties not tending visibly to that 
object are scarcely so regarded at all. A country would hardly be 
said to be richer, except by a metaphor, however precious a possession 
it might have in the genius, the virtues, or the accomplishments 
of its inhabitants ; unless indeed these were looked upon as market- 
able articles, by which it could attract the material wealth of other 
countries, as the Greeks of old, and several modern nations have 
done. While, therefore, I should prefer, were I constructing a 
new technical language, to make the distinction turn upon the 
permanence rather than upon the materiality of the product, yet 
when employing terms which common usage has taken complete 
possession of, it seems advisable so to employ them as to do the 
least possible violence to usage ; since any improvement in ter- 
minology obtained by straining the received meaning of a popular 
phrase is generally purchased beyond its value, by the obscurity 
arising from the conflict between new and old associations. 

I shall, therefore, in this treatise, when speaking of wealth, 
understand by it only what is called material wealth, and by pro- 
ductive labour only those kinds of exertion which produce utiHties 
embodied in material objects. But in limiting myself to this sense 
of the word, I mean to avail myself of the full extent of that restricted 
acceptation, and I shall not refuse the appellation productive, to 
labour which yields no material product as its direct result, provided 
that an increase of material products is its ultimate consequence. 
Thus, labour expended in the acquisition of manufacturing skill, 1 
class as productive, not in virtue of the skill itself, but of the manu- 
factured products created by the skill, and to the creation of which 
the labour of learning the trade is essentially conducive. The 
labour of officers of government in affording the protection which, 

* Essays on some Unsettled Questions of Political Economy. Essay III. 
On the words Productive and Unproductive. 



UNPRODUCTIVE LABOUR 49 

afiorded in some manner or other, is indispensable to the prosperity 
of industry, must be classed as productive even of material wealth, 
because without it, material wealth, in anything Hke its present 
abundance, could not exist. Such labour may be said to be produc- 
tive indirectly or mediately, in opposition to the labour of the 
ploughman and the cotton-spinner, which are productive immedi- 
ately. They are all aHke in this, that they leave the community 
richer in material products than they found it ; they increase, or 
tend to increase, material wealth. 

§ 4. By Unproductive Labour, on the contrary, will be under- 
stood labour which does not terminate in the creation of material 
wealth ; which, however largely or successfully practised, does not 
render the community, and the world at large, richer in material 
products, but poorer by all that is consumed by the labourers while 
so employed. 

All labour is, in the language of political economy, unproductive, 
which ends in immediate enjoyment, without any increase of the 
accumulated stock of permanent means of enjoyment. And all 
labour, according to our present definition,, must be classed as 
unproductive, which terminates in a permanent benefit, however 
important, provided that an increase of material products forms 
no part of that benefit. The labour of saving a friend's life is not 
productive, unless the friend is a productive labourer, and produces 
more than he consumes. To a religious person the saving of a soul 
must appear a far more important service than the saving of a fife ; 
but he will not therefore call a missionary or a clergyman productive 
labourers, unless they teach, as the South Sea Missionaries have in 
some cases done, the arts of civilization in addition to the doctrines 
of their religion. It is, on the contrary, evident that the greater 
number of missionaries or clergymen a nation maintains, the less 
it has to expend on other things ; while the more it expends judi- 
ciously in keeping agriculturists and manufacturers at work, the 
more it will have for every other purpose. By the former it dimin- 
ishes, cceteris parihus, its stock of material products ; by the latter, 
it increases them. 

Unproductive may be as useful as productive labour ; it may 
be more useful, even in point of permanent advantage ; or its use 
may consist only in pleasurable sensation, which when gone leaves 
no trace ; or it may not afford even this, but may be absolute waste. 
In any case society or mankind grow no richer by it, but poorer. All 



50 BOOR I. CHAPTER III. § 4 

material products consumed by any one while he produces nothing 
are so much subtracted, for the time, from the material products 
which society would otherwise have possessed. But though society 
grows no richer by unproductive labour, the individual may. An 
unproductive labourer may receive for his labour, from those who 
derive pleasure or benefit from it, a remuneration which may be to 
him a considerable source of wealth ; but his gain is balanced by their 
loss ; they may have received a full equivalent for their expenditure, 
but they are so much poorer by it. When a tailor makes a coat 
and sells it, there is a transfer of the price from the customer to the 
tailor, and a coat besides which did not previously exist ; but what 
is gained by an actor is a mere transfer from the spectator's funds 
to his, leaving no article of wealth for the spectator's indemnifica- 
tion. Thus the community collectively gains nothing by the actor's 
labour ; and it loses, of his receipts, all that portion which he 
consumes, retaining only that which he lays by. A community, 
however, may add to its wealth by unproductive labour, at the 
expense of other communities, as an individual may at the expense 
of other individuals. The gains of Italian opera singers, German 
governesses, French ballet dancers, &c., are a source of wealth, 
as far as they go, to their respective countries, if they return thither. 
The petty states of Greece, especially the ruder and more backward 
of those states, were nurseries of soldiers, who hired themselves 
to the princes and satraps of the East to carry on useless and destruc- 
tive wars, and returned with their savings to pass their declining 
years in their own country : these were unproductive labourers, 
and the pay they received, together with the plunder they took, 
was an outlay without return to the countries which furnished it ; 
but, though no gain to the world, it was a gain to Greece. At a 
later period the same country and its colonies supplied the Eoman 
empire with another class of adventurers, who, under the name of 
philosophers or of rhetoricians, taught to the youth of the higher 
classes what were esteemed the most valuable accomplishments : 
these were mainly unproductive labourers, but their ample recom- 
pense was a source of wealth to their own country. In none of these 
cases was there any accession of wealth to the world. The services 
of the labourers, if useful, were obtained at a sacrifice to the world 
of a portion of material wealth ; if useless, all that these labourers 
consumed was to the world waste. 

To be wasted, however, is a liability not confined to unproductive 
labour. Productive labour may equally be wasted, if more of it is 



UNPEODUCTIVE LABOUR 51 

expended than really conduces to production. If defect of skill in 
labourers, or of judgment in those who direct them, causes a mis- 
application of productive industry ; if a farmer persists in ploughing 
with three horses and two men, when experience has shown that two 
horses and one man are sufficient, the surplus labour, though em- 
ployed for purposes of production, is wasted. If a new process is 
adopted which proves no better, or not so good as those before in 
use, the labour expended in perfecting the invention and in carrying 
it into practice, though employed for a productive purpose, is wasted. 
Productive labour may render a nation poorer, if the wealth it pro- 
duces, that is, the increase it makes in the stock of useful or agreeable 
things, be of a kind not immediately wanted ; as when a commodity 
is unsaleable, because produced in a quantity beyond the present 
demand ; or when speculators build docks and warehouses before 
there is any trade. Some of the States of North America,^ by making 
premature railways and canals, are thought to have made this 
kind of mistake ; and it was for some time doubtful whether Eng- 
land, in the disproportionate development of railway enterprise, 
had not, in some degree, followed the example. Labour sunk in 
expectation of a distant return, when the great exigencies or limited 
resources of the community require that the return be rapid, may 
leave the country not only poorer in the meanwhile, by all which 
those labourers consume, but less rich even ultimately than if 
immediate returns had been sought in the first instance, and enter- 
prises for distant profit postponed. 

§ 5. The distinction of Productive and Unproductive is ap- 
plicable to consumption as well as to labour. AU the members 
of the community are not labourers, but all are consumers, and 
consume either unproductively or productively. Whoever con- 
tributes nothing directly or indirectly to production, is an unpro- 
ductive consumer. The only productive consumers are productive 
labourers ; the labour of direction being of course included, as well 
as that of execution. But the consumption even of productive 
labourers is not all of it productive consumption. There is unpro- 
ductive consumption by productive consumers. What they 
consume in keeping up or improving their health, strength, and 
capacities of work, or in rearing other productive labourers to succeed 

^ ['* The bankrupt states of North America " in all editions until the 7th 
(1871). "It remains to be shown whether England," &c., remained two lines 
l[?elow until the 5th ed. (1862).! 



52 BOOR I. CHAPTER IIL § 6 ^ 

them, is productive consumption. But consumption on pleasures or 
luxuries, whether by the idle or by the industrious, since production 
is neither its object nor is any way advanced by it, must be reckoned 
unproductive : with a reservation perhaps of a certain quantum of 
enjoyment which may be classed among necessaries, since anything 
short of it would not be consistent with the greatest efficiency of 
labour. That alone is productive consumption, which goes to main- 
tain and increase the productive powers of the community ; either 
those residing in its soil, in its materials, in the number and 
efficiency of its instruments of production, or in its people. 

There are numerous products which may be said not to admit 
of being consumed otherwise than unproductively. The annual 
consumption of gold lace, pine apples, or champagne, must be reck- 
oned unproductive, since these things give no assistance to produc- 
tion, nor any support to Hfe or strength, but what would equally be 
given by things much less costly. Hence it might be supposed that 
the labour employed in producing them ought not to be regarded 
as productive, in the sense in which the term is understood by 
political economists. I grant that no labour tends to the permanent 
enrichment of society, which is employed in producing things for 
the use of unproductive consumers. The tailor who makes a coat 
for a man who produces nothing, is a productive labourer ; but in a 
few weeks or months the coat is worn out, while the wearer has not 
produced anything to replace it, and the community is then no 
richer by the labour of the tailor, than if the same sum had been 
paid for a stall at the opera. Nevertheless, society has been richer 
by the labour while the coat lasted, that is, until society, through 
one of its unproductive members, chose to consume the produce 
of the labour unproductively. The case of the gold lace or the pine 
apple is no further different, than that they are still further removed 
than the coat from the character of necessaries. These things also 
are wealth until they have been consumed. 

§ 6. We see, however, by this, that there is a distinction, more 
important to the wealth of a community than even that between 
productive and unproductive labour ; the distinction, namely, 
between labour for the supply of productive, and for the supply of 
unproductive, consumption ; between labour employed in keeping 
up or in adding to the productive resources of the country, and that 
which is employed otherwise. Of the produce of the country, a 
part only is destined to be consumed productively ; the remainder 



UNPRODUCTIVE LABOUR 53 

supplies the unproductive consumption of producers, and the 
entire consumption of the improductive classes. Suppose that the 
proportion of the annual produce applied to the first purpose 
amounts to half : then one-half the productive labourers of the 
country are all that are employed in the operations on which 
the permanent wealth of the country depends. The other half are 
occupied from year to year and from generation to generation in 
producing things which are consumed and disappear without return ; 
and whatever this half consume is as completely lost, as to any 
permanent efiect on the national resources, as if it were consumed 
unproductively. Suppose that this second half of the labouring 
population ceased to work, and that the government or their parishes 
maintained them in idleness for a whole year : the first half would 
suf&ce to produce, as they had done before, their own necessaries 
and the necessaries of the second half, and to keep the stock of 
materials and implements undiminished : the unproductive classes, 
indeed, would be either starved or obhged to produce their own 
subsistence, and the whole community would be reduced during a year 
to bare necessaries ; but the sources of production would be unim- 
paired, and the next year there would not necessarily be a smaller 
produce than if no such interval of inactivity had occurred ; while 
if the case had been reversed, if the first half of the labourers had 
suspended their accustomed occupations, and the second half 
had continued theirs, the country at the end of the twelvemonth 
would have been entirely impoverished. 

It would be a great error to regret the large proportion of the 
annual produce, which in an opulent country goes to supply unpro- 
ductive consumption. It would be to lament that the community 
has so much to spare from its necessities, for its pleasures and for all 
higher uses. This portion of the produce is the fund from which 
all the wants of the community, other than that of mere Hving, are 
provided for ; the measure of its means of enjoyment, and of its 
power of accomphshing all purposes not productive. That so great a 
surplus should be available for such purposes, and that it should be 
apphed to them, can only be a subject of congratulation. The things 
to be regretted, and which are not incapable of being remedied, 
are the prodigious inequahty with which this surplus is distributed, 
the Httle worth of the objects to which the greater part of it is 
devoted, and the large share which falls to the lot of persons who 
render no equivalent service in return.^ 

^ [See Appendix D. Productive and Unproductive.'] 



CHAPTER IV 

OF CAPITAL 

§ 1. It has been seen in the preceding chapters that besides 
the primary and universal requisites of production, labour and 
natural agents, there is another requisite without which no pro- 
ductive operations, beyond the rude and scanty beginnings of primi- 
tive industry, are possible : namely, a stock, previously accumulated, 
of the products of former labour. This accumulated stock of the 
produce of labour is termed Capital. The function of Capital in 
production it is of the utmost importance thoroughly to understand, 
since a number of the erroneous notions with which our subject 
is infested originate in an imperfect and confused apprehension 
of this point. 

Capital, by persons wholly unused to reflect on the subject, is 
supposed to be synonymous with money. To expose this mis- 
apprehension, would be to repeat what has been said in the intro- 
ductory chapter. Money is no more synonymous with capital than 
it is with wealth. Money cannot in itself perform any part of the 
office of capital, since it can afford no assistance to production. To 
do this, it must be exchanged for other things ; and anything, which 
is susceptible of being exchanged for other things, is capable of 
contributing to production in the same degree. "What capital does 
for production, is to afford the shelter, protection, tools and materials 
which the work requires, and to feed and otherwise maintain the 
labourers during the process. These are the services which present 
labour requires from past, and from the produce of past, labour. 
Whatever things are destined for this use — destined to supply 
productive labour with these various prerequisites — are Capital. 

To familiarize ourselves with the conception, let us consider 
what is done with the capital invested in any of the branches of 
business which compose the productive industry of a country. A 
manufacturers for example, has one part of his capital in the form 



CAPITAL 55 

of buildings, fitted and destined for carrying on his brancli of manu- 
facture. Another part lie has in the form of machinery. A third 
consists, if he be a spinner, of raw cotton, flax, or wool ; if a weaver, 
of flaxen, woollen, silk, or cotton, thread ; and the like, according 
to the nature of the manufacture. Food and clothing for his opera- 
tives it is not the custom of the present age that he should directly 
provide ; and few capitaHsts, except the producers of food or 
clothing, have any portion worth mentioning of their capital in 
that shape. Instead of this, each capitahst has money, which he 
pays to his workpeople, and so enables them to supply themselves : 
he has also finished goods in his warehouses, by the sale of which he 
obtains more money, to employ in the same manner, as well as to 
replenish his stock of materials, to keep his buildings and machinery 
in repair, and to replace them when worn out. His money and 
finished goods, however, are not wholly capital, for he does not wholly 
devote them to these purposes : he employs a part of the one, and 
of the proceeds of the other, in supplying his personal consumption 
and that of his family, or in hiring grooms and valets, or maintaining 
hunters and hounds, or in educating his children, or in paying taxes, 
or in charity. What then is his capital ? Precisely that part of his 
possessions, whatever it be, which is to constitute his fund for 
carrying on fresh production. It is of no consequence that a part, 
or even the whole of it, is in a form in which it cannot directly 
supply the wants of labourers. 

Suppose, for instance, that the capitalist is a hardware manu- 
facturer, and that his stock in trade, over and above his machinery, 
consists at present wholly in iron goods. Iron goods cannot feed 
labourers. Nevertheless, by a mere change of the destination of 
these iron goods, he can cause labourers to be fed. Suppose that 
with a portion of the proceeds he intended to maintain a pack of 
hounds, or an estabhshment of servants ; and that he changes his 
intention, and employs it in his business, paying it in wages to 
additional workpeople. These workpeople are enabled to buy and 
consume the food which would otherwise have been consumed by the 
hounds or by the servants ; and thus, without the employer's ha\dng 
seen or touched one particle of the food, his conduct has determined 
that so much more of the food existing in the country has been 
devoted to the use of productive labourers, and so much less con- 
sumed in a manner wholly unproductive. Now vary the hypothesis, 
and suppose that what is thus paid in wages would otherwise have 
been laid out not in feeding servants or hounds, but in buying plate 



56 BOOK L CHAPTER IV. § 2 

and jewels ; and in order to render the effect perceptible, let us 
suppose that the change takes place on a considerable scale, and 
that a large sum is diverted from buying plate and jewels to employ- 
ing productive labourers, whom we shall suppose to have been 
previously, like the Irish peasantry [1848], only half employed 
and half fed. The labourers, on receiving their increased wages, 
will not lay them out in plate and jewels, but in food. There is not, 
however, additional food in the country ; nor any unproductive 
labourers or animals, as in the former case, whose food is set free 
for productive purposes. Food will therefore be imported if possible ; 
if not possible, the labourers will remain for a season on their short 
allowance : but the consequence of this change in the demand for 
commodities, occasioned by the change in the expenditure of 
capitalists from unproductive to productive, is that next year more 
food will be produced, and less plate and jewellery. So that again, 
without having had anything to do with the food of the labourers 
directly, the conversion by individuals of a portion of their property, 
no matter of what sort, from an unproductive destination to a pro- 
ductive, has had the effect of causing more food to be appropriated 
to the consumption of productive labourers. /The distinction, then, 
between Capital and Not-capital, does not lie in the kind of commo- 
dities, but in the mind of the capitalist — in his will to employ them 
for one purpose rather than another ; and all property, however 
ill adapted in itself for the use of labourers, is a part of capital, 
so soon as it, or the value to be received from it, is set apart for 
— -.productive reinvestment. The sum of all the values so destined 
by their respective possessors, composes the capital of the country. 
Whether all those values are in a shape directly applicable to pro- 
ductive uses, makes no difference. Their shape, whatever it may 
be, is a temporary accident : but once destined for production, they 
do not fail to find a way of transforming themselves into things 
capable of being applied to it. 

§ 2. As whatever of the produce of the country is devoted to 
production is capital, so, conversely, the whole of the capital of the 
country is devoted to production. This second proposition, however, 
must be taken with some Hmitations and explanations. A fund may 
be seeking for productive employment, and find none, adapted to 
the inchnations of its possessor : it then is capital still, but unem- 
ployed capital. Or the stock may consist of unsold goods, not 
susceptible of direct application to productive uses, and not, at the 



CAPITAL 57 

moment, marketable : these, until sold, are in tlie condition of 
miemployed capital. Again, artificial or accidental circumstances 
may render it necessary to possess a larger stock in advance, tliat 
is, a larger capital before entering on production, than is required 
by the nature of things. Suppose that the government lays a tax on 
the production in one of its earlier stages, as for instance by taxing 
the material. The manufacturer has to advance the tax, before 
commencing the manufacture, and is therefore under a necessity of 
having a larger accumulated fund than is required for, or is 
actually employed in, the production which he carries on. He 
must have a larger capital, to maintain the same quantity of 
productive labour ; or (what is equivalent) with a given capital 
he maintains less labour. This mode of levying taxes, therefore, 
Hmits unnecessarily the industry of the country : a portion of 
the fund destined by its owners for production being diverted 
from its purpose, and kept in a constant state of advance to the 
government. 

For another example : a farmer may enter on his farm at such 
a time of the year, that he may be required to pay one, two, or even 
three quarters' rent before obtaining any return from the produce. 
This, therefore, must be paid out of his capital. Now_rent, when 
paid for the land itself, and not for improvements made in it by labour, 
is not a productive expenditure. It is not an outlay for the 
support ol labour, or for the provision of implements or materials 
the produce of labour. It is the price paid for the use of an 
appropriated natural agent. This natural agent is indeed as in- 
dispensable (and even more so) as any implement : but the 
having to pay a price for it, is not. In the case of the implement 
(a thing produced by labour) a price of some sort is the necessary 
condition of its existence : but the land exists by nature. The 
payment for it, therefore, is not one of the expenses of pro- 
duction ; and the necessity of making the payment out of capital 
makes it requisite that there should be a greater capital, a greater 
antecedent accumulation of the produce of past labour, than is 
naturally necessary, or than is needed where land is occupied on a 
different system. This extra capital, though intended by its owners 
for production, is in reauty employed unproductively, and annually 
replaced, not from any produce of its own, but from the produce of 
the labour supported by the remainder of the farmer's capital. 

Finally, that large portion of the productive capital of a country 
which is employed in paying the wages and salaries of labourers 



58 BOOK I. CHAPTER IV. § 2 

evidently is not, all of it, strictly and indispensably necessary for 
production. As much of it as exceeds the actual necessaries of Hfe 
and health (an excess which in the case of skilled labourers is 
usually considerable) is not expended in supporting labour, but 
in remunerating it, and the labourers could wait for this part of theii 
remuneration until the production is completed ; it needs not 
necessarily pre-exist as capital : and if they unfortunately had to 
forego it altogether, the same amount of production might take 
place. In order that the whole remuneration of the labourers should 
be advanced to them in daily or weekly payments, there must exist 
in advance, and be appropriated to productive use, a greater stock, 
or capital, than would suffice to carry on the existing extent of 
production : greater, by whatever amount of remuneration the 
labourers received, beyond what the self-interest of a prudent slave- 
master would assign to his slaves. In truth, it is only after an 
abundant capital had already been accumulated, that the practice 
of paying in advance any remuneration of labour beyond a bare 
subsistence could possibly have arisen : since whatever is so paid, 
is not really applied to production, but to the unproductive consump- 
tion of productive labourers, indicating a fund for production 
sufficiently ample to admit of habitually diverting a part of it to a 
mere convenience. 

It will be observed that I have assumed, that the labourers are 
always subsisted from capital : and this is obviously the fact, 
though the capital needs not necessarily be furnished by a person 
called a capitalist. When the labourer maintains himself by funds 
of his own, as when a peasant-farmer or proprietor Uves on the 
produce of his land, or an artisan works on his own account, they are 
still supported by capital, that is, by funds provided in advance. 
The peasant does not subsist this year on the produce of this year's 
harvest, but on that of the last. The artisan is not living on the 
proceeds of the work he has in hand, but on those of work previously 
executed and disposed of. Each is supported by a small capital of 
his own, which he periodically replaces from the produce of his 
labour. The large capitalist is, in like manner, maintained from 
funds provided in advance. If he personally conducts his operations, 
as much of his personal or household expenditure as does not exceed 
a fair remuneration of his labour at the market price must be con- 
sidered a part of his capital, expended, like any other capital, for 
production : and his personal consumption, so far as it consists of 
necessaries, is productive consumption. 



CAPITAL 5d 

§ 3. At the risk of being tedious, I must add a few more illus- 
trations, to bring out into a still clearer and stronger Kght the idea 
of Capital. As M. Say truly remarks, it is on the very elements of 
our subject that illustration is most usefully bestowed, since the 
greatest errors which prevail in it may be traced to the want of a 
thorough mastery over the elementary ideas. Nor is this surprising : 
a branch may be diseased and all the rest healthy, but unsoundness 
at the root diffuses unhealthiness through the whole tree. 

Let us therefore consider whether, and in what cases, the property 
of those who hve on the interest of what they possess, without being 
personally engaged in production, can be regarded as capital. It is 
so called in common language, and, with reference to the individual, 
not improperly. All funds from which the possessor derives an 
income, which income he can use without sinking and dissipating 
the fund itself, are to him equivalent to capital. But to transfer 
hastily and inconsiderately to the general point of view propositions 
which are true of the individual has been a source of innumerable 
errors in pohtical economy. In the present instance, that which is 
virtually capital to the individual, is or is not capital to the nation, 
according as the fund which by the supposition he has not dissipated, 
has or has not been dissipated by somebody else. 

For example, let property of the value of ten thousand pounds 
belonging to A, be lent to B, a farmer or manufacturer, and employed 
profitably in B's occupation. It is as much capital as if it belonged 
to B. A is really a farmer or manufacturer, not personally, but in 
respect of his property. Capital worth ten thousand pounds is 
employed in production — in maintaining labourers and providing 
tools and materials ; which capital belongs to A, while B takes the 
trouble of employing it, and receives for his remuneration the differ- 
ence between the profit which it yields and the interest he pays 
to A. This is the simplest case. 

Suppose next that A's ten thousand pounds, instead of being 
lent to B, are lent on mortgage to C, a landed proprietor, by whom 
they are employed in improving the productive powers of his estate, 
by fencing, draining, road-making, or permanent manures. This 
is productive employment. The ten thousand pounds are sunk, 
but not dissipated. They yield a permanent return ; the land now 
affords an increase of produce, sufficient, in a few years, if the outlay 
has been judicious, to replace the amount, and in time to multiply 
it manifold. Here, then, is the value of ten thousand pounds, 
employed in increasing the produce of the country. This constitutes 



60 BOOK I. CHAPTER IV. § 3 

a capital, for which C, if he lets his land, receives the returns in the 
nominal form of increased rent ; and the mortgage entitles A to 
receive from these returns, in the shape of interest, such annual sum 
as has been agreed on. We will now vary the circumstances, and 
suppose that C does not employ the loan in improving his land, but 
in paying of! a former mortgage, or in making a provision for children. 
Whether the ten thousand pounds thus employed are capital or not, 
will depend on what is done with the amount by the ultimate receiver. 
If the children invest their fortunes in a productive employment, or 
the mortgagee on being paid oS lends the amount to another land- 
Jiolder to improve his land, or to a manufacturer to extend his 
business, it is still capital, because productively employed. 

Suppose, however, that C, the borrowing landlord, is a spend- 
thrift, who burdens his land not to increase his fortune but to 
squander it, expending the amount in equipages and entertainments. 
In a year or two it is dissipated, and without return. A is as rich 
as before ; he has no longer his ten thousand pounds, but he has a 
Hen on the land, which he could still sell for that amount. C, 
however, is 10,000L poorer than^ formerly ; and nobody is richer. 
It may be said that those are richer who have made profit 
out of the money while it was being spent. No doubt if C lost 
it by gaming, or was cheated of it by his servants, that is a mere 
transfer, not a destruction, and those who have gained the 
amount may employ it productively. But if C has received the 
fair value for his expenditure in articles of subsistence or luxury, 
which he has consumed on himself, or by means of his servants or 
guests, these articles have ceased to exist, and nothing has been 
produced to replace them : while if the same sum had been employed 
in farming or manufacturing, the consumption which would have 
taken place would have been more than balanced at the end of the 
year by new products, created by the labour of those who would in 
that case have been the consumers. By C's prodigality, that which 
would have been consumed with a return, is consumed without 
return. C's tradesmen may have made a profit during the process ; 
but if the capital had been expended productively, an equivalent 
profit would have been made by builders, fencers, tool-makers, and 
the tradespeople who supply the consumption of the labouring classes ; 
while at the expiration of the time (to say nothing of any increase), 
C would have had the ten thousand pounds or its value replaced 
to him, which now he has not. There is, therefore, on the general 
result, a difference to the disadvantage of the community, of 



CAPITAL 61 

at least ten thousand pounds, being tlie amount- of C's unproductive 
expenditure. To A, the difference is not material, since his income 
is secured to him, and while the security is good, and the market 
rate of interest the same, he can always sell the mortgage at its 
original value. To A, therefore, the lien of ten thousand pounds on 
C's estate, is virtually a capital of that amount ; but is it so in 
reference to the community ? It is not. A had a capital of ten 
thousand pounds, but this has been extinguished — dissipated and 
destro5^ed by C's prodigality. A now receives his income, not 
from the produce of his capital, but from some other source of income 
belonging to C, probably from the rent of his land, that is, from 
payments made to him by farmers out of the produce of their capital. 
The national capital is diminished by ten thousand pounds, and the 
national income by all which those ten thousand pounds, employed 
as capital, would have produced. The loss does not fall on the owner 
of the destroyed capital, since the destroyer has agreed to indemnify 
him for it. But his loss is only a small portion of that sustained by 
the community, since what was devoted to the use and consumption 
of the proprietor was only the interest ; the capital itself was, or 
would have been, employed in the perpetual maintenance of an 
equivalent number of labourers, regularly reproducing what they 
consumed: and of this maintenance they are deprived without 
compensation. 

Let us now vary the hypothesis still further, and suppose that 
the money is borrowed, not by a landlord, but by the State. A 
lends his capital to Government to carry on a war : he buys from 
the State what are called government securities ; that is, obligations 
on the government to pay a certain annual income. If the govern- 
ment employed the money in making a railroad, this might be a 
productive employment, and A's property would still be used as 
capital ; but since it is employed in war, that is, in the pay of officers 
and soldiers who produce nothing, and in destroying a quantity of 
gunpowder and bullets without return, the government is in the 
situation of C, the spendthrift landlord, and A's ten thousand pounds 
are so much national capital which once existed, but exists no longer : 
virtually thrown into the sea, as far as wealth or production is 
concerned ; though for other reasons the employment of it may 
have been justifiable. A's subsequent income is derived, not from 
the produce of his own capital, but from taxes drawn from the 
produce of the remaining capital of the community ; to whom his 
capital is not yielding any return, to indemnify them for the payment 



62 BOOK I. CHAPTER IV. § 3 

it is lost and gone, and what he now possesses is a claim on the returns 
to other people's capital and industry. This claim he can sell, and 
get back the equivalent of his capital, which he may afterwards 
employ productively. True ; but he does not get back his own 
capital, or anything which it has produced ; that, and all its possible 
returns, are extinguished : what he gets is the capital of some other 
person, which that person is willing to exchange for his Hen on the 
taxes. Another capitalist substitutes himself for A as a mortgagee 
of the public, and A substitutes himself for the other capitaUst 
as the possessor of a fund employed in production, or available for 
it. By this exchange the productive powers of the community are 
neither increased nor diminished. The breach in the capital of 
the country was made when the government spent A's money : 
whereby a value of ten thousand pounds was withdrawn or withheld 
from productive employment, placed in the fund for unproductive 
consumption, and destroyed without equivalent.^ 

^ [See Appendix E. The Definition of Capital.'] 



\ 



CHAPTER V 

FUNDAMENTAL PROPOSITIONS RESPECTING CAPITAL 

§ 1. If the preceding explanations have answered their purpose, 
thev have given not only a sufficiently complete possession of the 
idea of Capital according to its definition, but a sufficient familiarity 
with it in the concrete, and amidst the obscurity with which the 
complication of individual circumstances surrounds it, to have 
prepared even the unpractised reader for certain elementary pro- 
positions or theorems respecting capital, the full comprehension of 
which is already a considerable step out of darkness into light. 

The first of these propositions is. That industry is limited by 
capital. This is so obvious as to be taken for granted in many 
common forms of speech ; but to see a truth occasionally is one thing, 
to recognise it habitually, and admit no propositions inconsistent with 
it, is another. The axiom was until lately almost universally disre- 
garded by legislators and political writers ; and doctrines irrecon- 
cileable with it are still very commonly professed and inculcated. 

The following are common expressions implying its truth. The 
act of directing industry to a particular employment is described 
by the phrase " applying capital " to the employment. To employ i 
industry on the land is to apply capital to the land. To employ 
labour in a manufacture is to invest capital in the manufacture. 
This impHes that industry cannot be employed to any greater extent 
than there is capital to invest. The proposition, indeed, must 
be assented to as soon as it is distinctly apprehended. The expres- 
sion " applying capital "is of course metaphorical : what is really 
apphed is labour ; capital being an indispensable condition. Again, 
we often speak of the " productive powers of capital." This ex- 
pression is not literally correct. The only productive powers are 
those of labour and natural agents ; or if any portion of capital 
can by a stretch of language be said to have a productive power ot 
its own, it is only tools and machinery, which, Uke wind or water. 



64 BOOK I. CHAPTER V. § 1 

may be said to co-operate with labour. The food of labourers and 
the materials of production have no productive power ; but labour 
cannot exert its productive power unless provided with them. 

1 There can be no more industry than is supplied with materials to 
work up and food to eat. Self-evident as the thing is, it is often 
forgotten that the people of a country are maintained and have 
their wants supplied, not by the produce of present labour, but 
of past. They consume what has been produced, not what is about 
to be produced. Now, of what has been produced, a part only is 
allotted to the support of productive labour ; and there will not 
( and cannot be more of that labour than the portion so allotted 
; (which is the capital of the country) can feed, and provide with the 
I materials and instruments of production. 

Yet, in disregard of a fact so evident, it long continued to be 
believed that laws and governments, without creating capital, 
could create industry. Not by making the people more laborious, 
or increasing the efficiency of their labour ; these are objects to 
which the government can, in some degree, indirectly contribute. 
But without any increase in the skill or energy of the labourers, and 
without causing any persons to labour who had previously been 
maintained in idleness, it was still thought that the government, 
without providing additional funds, could create additional employ- 
ment. A government would, by prohibitory laws, put a stop to 
the importation of some commodity ; and when by this it had 
caused the commodity to be produced at home, it would plume 
itself upon having enriched the country with a new branch of 
industry, would parade in statistical tables the amount of produce 
yielded and labour employed in the production, and take credit for 
the whole of this as a gain to the country, obtained through the 
prohibitory law. Although this sort of poUtical arithmetic has 
fallen a Httle into discredit in England, it still flourishes in the 
nations of Continental Europe. Had legislators been aware that 
industry is Hmited by capital, they would have seen that, the 
aggregate capital of the country not having been increased, any 
portion of it which they by their laws had caused to be embarked 
in the newly- acquired branch of industry must have been with- 
drawn or withheld from some other ; in which it gave, or would 
have given, employment to probably about the same quantity 
of labour which it employs in its new occupation.* 

* An exception must be admitted when the industry created or upheld 
by the restrictive law belongs to the class of what are called domestic 



FUNDAMENTAL PROPOSITIONS ON CAPITAL 65 

§ 2. Because industry is limited by capital, we are not however 
to infer that it always reaches that limit. Capital may be tem- 
porarily unemployed, as in the case of unsold goods, or funds that 
have not yet found an investment : during this interval it does not 
set in motion any industry. Or there may not be as many labourers 
obtainable, as the capital would maintain and employ. This has 
been known to occur in new colonies, where capital has sometimes 
perished uselessly for want of labour : the Swan River settlement 
(now called Western Austraha), in the first years after its foundation, 
was an instance. There are many persons maintained from existing 
capital, who produce nothing, or who might produce much more 
than they do. If the labourers were reduced to lower wages, or 
induced to work more hours for the same wages, or if their families, 
who are already maintained from capital, were employed to a 
greater extent than they now are in adding to the produce, a given 
capital would afford employment to more industry. The un- 
productive consumption of productive labourers, the whole of 
which is now supplied by capital, might cease, or be postponed until 
the produce came in ; and additional productive labourers might 
be maintained with the amount. By such means society might 
obtain from its existing resources a greater quantity of produce : 
and to such means it has been driven, when the sudden destruction 
of some large portion of its capital rendered the employment 
of the remainder with the greatest possible effect a matter of 
paramount consideration for the time. 

When industry has not come up to the limit imposed by capital, 
governments may, in various ways, for example by importing addi- 
tional labourers, bring it nearer to that limit : as by the importation 

manufactures. These being carried on by persons already fed — by labouring 
families, in the intervals of other employment — no transfer of capital to the 
occupation is necessary to its being undertaken, beyond the value of the 
materials and tools, which is often inconsiderable. If, therefore, a protecting 
duty causes this occupation to be carried on, when it otherwise would not, 
there is in this case a real increase of the production of the country. 

In order to render our theoretical proposition invulnerable, this peculiar 
case must be allowed for ; but it does not touch the practical doctrine of free 
trade. Domestic manufactures cannot, from the very nature of things, require 
protection, since the subsistence of the labourers being provided from other 
sources, the price of the product, however much it may be reduced, is nearly 
all clear gain. If, therefore, the domestic producers retire from the competition, 
it is never from necessity, but because the product is not worth the labour 
it costs, in the opinion of the best judges, those who enjoy the one and undergo 
the other. They prefer the sacrifice of buying their clothing to the labour of 
making it. They will not continue their labour unless society will give them 
more for it, than in their own opinion its product is worth. 



66 BOOR L CHAPTER V. § 3 

of Coolies and free Negroes into the West Indies. There is 
another way in which governments can create additional industry. 
They can create capital. They may lay on taxes, and employ 
the amount productively. They may do what is nearly equivalent ; 
they may lay taxes on income or expenditure, and apply the proceeds 
towards paying off the public debts. The fundholder, when paid 
off, would still desire to draw an income from his property, most 
of which therefore would find its way into productive employment, 
while a great part of it would have been drawn from the fund 
for unproductive expenditure, since people do not wholly pay 
their taxes from what they would have saved, but partly, if not 
chiefly, from what they would have spent. It may be added, 
that any increase in the productive power of capital (or, more properly 
speaking, of labour) by improvements in the arts of life, or otherwise, 
tends to increase the employment for labour ;. %ince, when there is 
a greater produce altogether, it is always probaSle that some portion 
of the increase will be saved and converted into capital^ especially 
when the increased returns to productive industry hold out an 
additional temptation to the conversion of funds from an unpro- 
ductive destination to a productive. 

§ 3. While, on the one hand, industry is limited by capital, 
so on the other, every increase of capital gives, or is capable of 
giving, additional employment to industry ; and this without 
assignable limit. I do not mean to deny that the capital, or part 
of it, may be so employed as not to support labourers, being fixed 
in machinery, buildings, improvement of land, and the like. In 
any large increase of capital a considerable portion will generally 
be thus employed, and will only co-operate with labourers, not 
maintain them. What I do intend to assert is, that the portion 
which is destined to their maintenance, may (supposing no altera- 
tion in anything else) be indefinitely increased, without creating an 
impossibility of finding them employment : in other words, that 
if there are human beings capable of work, and food to feed them, 
they may always be employed in producing something. This 
proposition requires to be somewhat dwelt upon, being one of those 
which it is exceedingly easy to assent to when presented in general 
terms, but somewhat difficult to keep fast hold of, in the crowd and 
confusion of the actual facts of society. It is also very much opposed 
to common doctrines. There is not an opinion more general among 
mankind than this, that the unproductive expenditure of the rich 



FUNDAMENTAL PROPOSITIONS ON CAPITAL 67 

is necessary to the employment of the poor. Before Adam Smith, 
the doctrine had hardly been questioned ; and even since his time, 
authors of the highest name and of great merit* have contended, 
that if consumers were to save and convert into capital more than 
a Hmited portion of their income, and were not to devote to un- 
productive consumption an amount of means bearing a certain 
ratio to the capital of the country, the extra accumulation would 
be merely so much waste, since there would be no market for the 
commodities which the capital so created would produce. I conceive 
this to be one of the many errors arising in poHtical economy, from 
the practice of not beginning with the examination of simple cases, 
but rushing at once into the complexity of concrete phenomena. 

Every one can see that if a benevolent government possessed 
all the food, and all the implements and materials, of the community, 
it could exact productive labour from all capable of it, to whom 
it allowed a share in the food, and could be in no danger of wanting 
a field for the employment of this productive labour, since as long 
as there was a single want unsaturated (which material objects 
could supply) of any one individual, the labour of the community 
could be turned to the production of something capable of satisfying 
that want. Now, the individual possessors of capital, when they 
add to it by fresh accumulations, are doing precisely the same 
thing which we suppose to be done by a benevolent government. 
As it is allowable to put any case by way of hypothesis, let us 
imagine the most extreme case conceivable. Suppose that every 
capitalist came to be of opinion that, not being more meritorious 
than a well-conducted labourer, he ought not to fare better ; and 
accordingly laid by, from conscientious motives, the surplus of 
his profits ; or suppose this abstinence not spontaneous, but imposed 
by law or opinion upon all capitaHsts, and upon landowners Hke- 
wise. Unproductive expenditure is now reduced to its lowest 
Hmit : gmd^it is asked, how is the increased capital to find employ- 
ment ? Who is to buy the goods which it Tvill produce ? There are 
no longer customers even for those which were produced before. 
The goods, therefore, (it is said) will remain unsold ; they will perish 
in the warehouses ; until capital is brought down to what it was 
originally, or rather to as much less, as the demand of the consumers 
has lessened. But this is seeing only one-half of the matter. In 
the case supposed, there would no longer be any demand for luxuries, 

* For example, Mr. Malthus, Dr. Chalmers, M. de Sismondi. 



68 BOOK I. CHAPTER V. § 4 

on tlie part of capitalists and landowners. But when these classes 

turn their income into capital, they do not thereby annihilate their 

power of consumption ; they do but transfer it from themselves 

to the labourers to whom they give employment. Now. there are 

two possible suppositions in regard to the labourers ; either there 

is, or there is not, an increase of their numbers, proportional to the 

increase of capital. If there is, the case ofiers no difficulty. The 

production jf necessaries for the new population, takes the place 

of the production of luxuries ior a portion of the old, and supphes 

exactly the amount of employment which has been lost. But 

suppose that there is no increase of population. The whole 

mf what was previously expended in luxuries, by capitaHsts and 

(landlords, is distributed among the existing labourers, in the form 

i of additional wages. We will assume them to be already sufficiently 

suppUed with necessaries. What follows ? That the labourers 

\ become consumers of luxuries ; and the capital previously employed 

\ in the production of luxuries is still able to employ itself in the 

I same manner : the difference being, that the luxuries are shared 

I among the community generally, instead of being confined to a 

few. The increased accumulation and increased production might, 

' rigorously speaking, continue, until every labourer had every 

; indulgence of wealth, consistent with continuing to work ; supposing 

I that the power of their labour were physically sufficient to produce 

I all this amount of indulgences for their whole number. Thus the 

I limit of wealth is never deficiency of consumers, but of producers and 

S productive power. \\ Every addition to capital gives to labour either 

• additional employment, or additional remuneration ; enriches either 

the country, or the labouring class. If it finds additional hands to set 

i to work, it increases the aggregate produce ; if only the same hands, 

j it gives them a larger share of it ; and perhaps even in this case, by 

I stimulating them to greater exertion, augments the produce itself. 

§ 4. A second fundamental theorem respecting Capital relates 
to the source from which it is derived. It is the result of saving. 
The evidence of this Hes abundantly in what has been already said 
on the subject. But the proposition needs some further illustration. 

If all persons were to expend in personal indulgences all that 
they produce, and all the income they receive from what is produced 
by others, capital could not increase. All capital, with a trifling 
exception, was originally the result of saving. I say, with a trifling 
exception ; because a person who labours on his own account may 



FUNDAMENTAL PROPOSITIONS ON CAPITAL 69 

spend on liis own account aU he produces, without becoming destitute ; 
and the provision of necessaries on which he subsists until he has 
reaped his harvest, or sold his commodity, though a real capital, 
cannot be said to have been saved, since it is all used for the supply 
of his own wants, and perhaps as speedily as if it had been consumed 
in idleness. We may imagine a number of individuals or families 
settled on as many separate pieces of land, each Hving on what their 
own labour produces, and consuming the whole produce. But even 
these must save (that is, spare from their personal consumption) as 
much as is necessary for seed. Some saving, therefore, there must 
have been, even in this simplest of all states of economical relations ; 
people must have produced more than they used, or used less than 
they produced. Still more must they do so before they can employ 
other labourers, or increase their production beyond what can be 
accompHshed by the work of their own hands. All that any one 
employs in supporting and carrying on any other labour than his own, 
must have been originally brought together by saving ; somebody 
must have produced it and forborne to consume it. We may say, 
therefore, without material inaccuracy, that all capital j and especially 
all addition to capital, is the result of saving. 

In a rude and violent state of society, it continually happens 
that the person who has capital is not the very person who has 
saved it, but some one who, being stronger, or belonging to a more 
powerful community, has possessed himself of it by plunder. And 
even in a state of things in which property was protected, the in- 
crease of capital has usually been, for a long time, mainly derived 
from privations which, though essentially the same with saving, are 
not generally called by that name, because not voluntary. The actual 
producers have been slaves, compelled to produce as much as force 
could extort from them, and to consume as Httle as the self-interest 
or the usually very slender humanity of their taskmasters would 
permit. This kind of compulsory saving, however, would not have 
caused any increase of capital, unless a part of the amount had been 
saved over again, voluntarily, by the master. If aU that he made his 
slaves produce and forbear to consume, had been consumed by him 
on personal indulgences, he would not have increased his capital, 
nor been enabled to maintain an increasing number of slaves. To 
maintain any slaves at all, impHed a previous saving ; a stock, 
at least of food, provided in advance. This saving may not, how- 
ever, have been made by any self-imposed privation of the master ; 
bat more probably by that of the slaves themselves while free ; the 



70 BOOK I. CHAPTER V. § 5 

rapine or war, which deprived them of their personal liberty, having 
transferred also their accumulations to the conqueror. 

There are other cases in which the term saving, with the associa- 
tions usually belonging to it, does not exactly fit the operation by 
which capital is increased. If it were said for instance, that the only 
way to accelerate the increase of capital is by increase of saving, 
the idea would probably be suggested of greater abstinence, and 
increased privation. But it is obvious that whatever increases the 
productive power of labour creates an additional fund to make 
savings from, and enables capital to be enlarged not only without 
additional privation, but concurrently with an increase of personal 
consumption. Nevertheless, there is here an increase of saving, 
in the scientific sense. Though there is more consumed, there is also 
more spared. There is a greater excess of production over con- 
sumption. It is consistent with correctness to call this a greater 
saving. Though the term is not unobjectionable, there is no other 
which is not liable to as great objections. To consume less than is 
produced, is saving ; and that is the process by which capital is 
increased ; not necessarily by consuming less, absolutely. We 
must not allow ourselves to be so much the slaves of words, as to be 
unable to use the word saving in this sense, without being in danger 
of forgetting that to increase capital there is another way besides 
consuming less, namely, to produce more. 

§ 5. A third fundamental theorem respecting Capital, closely 
connected with the one last discussed, is, that although saved, 
and the result of saving, it is nevertheless consumed. The word 
saving does not imply that what is saved is not consumed, nor even 
necessarily that its consumption is deferred ; but only that, if con- 
sumed immediately, it is not consumed by the person who saves it. 
If merely laid by for future use, it is said to be hoarded ; and while 
hoarded, is not consumed at all. But if employed as capital, it is all 
consumed ; though not by the capitalist. Part is exchanged for 
tools or machinery, which are worn out by use ; part for seed or 
materials, which are destroyed as such by being sown or wrought 
up, and destroyed altogether by the consumption of the ultimate 
product. The remainder is paid in wages to productive labourers, 
who consume it for their daily wants ; or if they in their turn save 
any part, this also is not, generally speaking, hoarded, but (through 
savings banks, benefit clubs, or some other channel) re-employed as 
capital, and consumed. 



FUNDMIENTAL PROPOSITIONS ON CAPITAL 71 

The principle now stated is a strong example of tlie necessity 
of attention to the most elementary truths of our subject : for it is 
one of the most elementary of them all, and yet no one who has not 
bestowed some thought on the matter is habitually aware of it, 
and most are not even willing to admit it when first stated. To 
the vulgar, it is not at all apparent that what is saved is consumed. 
To them, every one who saves appears in the Hght of a person who 
hoards : they may think such conduct permissible, or even laudable, 
when it is to provide for a family, and the like ; but they have no 
conception of it as doing good to other people : saving is to them 
another word for keeping a thing to oneself ; while spending appears 
to them to be distributing it among others. The person who 
expends his fortune in unproductive consumption is looked upon as 
diffusing benefits all around ; and is an object of so much favour, 
that some portion of the same popularity attaches even to him who 
spends what does not belong to him ; who not only destroys his own 
capital, if he ever had any, but under pretence of borrowing, and on 
promise of repayment, possesses himself of capital belonging to 
others, and destroys that Ukewise. 

This popular error comes from attending to a small portion 
only of the consequences that flow from the saving or the spending ; 
all the effects of either which are out of sight being out of mind. 
The eye follows what is saved into an imaginary strong-box, and 
there loses sight of it ; what is spent, it follows into the hands of 
tradespeople and dependents ; but without reaching the ultimate 
destination in either case. Saving (for productive investment), 
and spending, coincide very closely in the first stage of their opera- 
tions. The effects of both begin with consumption ; with the 
destruction of a certain portion of wealth ; only the things consumed, 
and the persons consuming, are different. There is, in the one case, 
a wearing out of tools, a destruction of material, and a quantity 
of food and clothing supplied to labourers, which they destroy 
by use : in the other case, there is a consumption, that is to say, a 
destruction, of wines, equipages, and furniture. Thus far, the con- 
sequence to the national wealth has been much the same ; an equi- 
valent quantity of it has been destroyed in both cases. But in the 
spending, this first stage is also the final stage; that particular amount 
of the produce of labour has disappeared, and there is nothing left ; 
while, on the contrary, the saving person, during the whole time 
that the destruction was going on, has had labourers at work repair- 
ing it ; who are ultimately found to have replaced, with an increase, 



72 BOOK I. CHAPTER V. § 5 

the equivalent of what has been consumed. And as this operation 
admits of being repeated indefinitely without any fresh act of 
saving, a saving once made becomes a fund to maintain a corres- 
ponding number of labourers in perpetuity, reproducing annually 
their own maintenance with a profit. 

It is the intervention of money which obscures, to an unpractised 

apprehension, the true character of these phenomena. Almost all 

expenditure being carried on by means of money, the money comes 

to be looked upon as the main feature in the transaction ; and 

since that does not perish, but only changes hands, people overlook 

the destruction which takes place in the case of unproductive 

expenditure. The money being merely transferred, they think the 

wealth also has only been handed over from the spendthrift to other 

people. But this is simply confounding money with wealth. The 

wealth which has been destroyed was not the money, but the wines, 

equipages, and furniture which the money purchased ; and these 

having been destroyed without return, society collectively is poorer 

by the amount. It may be said, perhaps, that wines, equipages, 

and furniture, are not subsistence, tools, and materials, and could 

not in any case have been applied to the support of labour ; that they 

are adapted for no other than unproductive consumption, and that 

the detriment to the wealth of the community was when they were 

produced, not when they were consumed. I am willing to allow 

this, as far as is necessary for the argument, and the remark would 

be very pertinent if these expensive luxuries were drawn from an 

existing stock, never to be replenished. But since, on the contrary, 

they continue to be produced as long as there are consumers for 

them, and are produced in increased quantity to meet an increased 

demand ; the choice made by a consumer to expend five thousand 

a year in luxuries keeps a corresponding number of labourers 

employed from year to year in producing things which can be of no 

use to production ; their services being lost so far as regards the 

increase of the national wealth, and the tools, materials, and food 

which they annually consume being so much subtracted from the 

general stock of the community applicable to productive purposes. 

In proportion as any class is improvident or luxurious, the industry 

of the country takes the direction of producing luxuries for their 

use ; while not only the employment for productive labourers is 

diminished, but the subsistence and instruments which are the 

means of such employment do actually exist in smaller quantity. 

\ Saving, in short, enriches, and spending impoverishes, the 



FUNDAMENTAL PROPOSITIONS ON CAPITAL 73 

community along with the individual ;H which is but saying in 
other words, that society at large is ricner by what it expends 
in maintaining and aiding productive labour, but poorer by what 
it consumes in its enjoyments.* 

§ 6. To return to our fundamental theorem. Everything 
which is produced is consumed ; both what is saved and what is 
said to be spent ; and the former quite as rapidly as the latter. 
AU the ordinary forms of language tend to disguise this. When 
people talk of the ancient wealth of a country, of riches inherited 

* It is worth while to direct attention to several circumstances which to a 
certain extent diminish the detriment caused to the general wealth by the 
prodigahty of individuals, or raise up a compensation, more or less ample, as 
a consequence of the detriment itself. One of these is, that spendthrifts do not 
usually succeed in consuming all they spend. Their habitual carelessness as to 
expenditure causes them to be cheated and robbed on all quarters, often by 
persons of frugal habits. Large accumulations are continually made by the 
agents, stewards, and even domestic servants, of improvident persons of fortune ; 
and they pay much higher prices for all purchases than people of careful 
habits, wMch accounts for their being popular as customers. They are, 
therefore, actually not able to get into their possession and destroy a quantity 
of wealth by any means equivalent to the fortune which they dissipate. Much 
of it is merely transferred to others, by whom a part may be saved. Another 
thing to be observed is, that the prodigahty of some may reduce others to a 
forced economy. Suppose a sudden demand for some article of luxury, caused 
by the caprice of a prodigal, which not having been calculated on beforehand, 
there has been no increase of the usual supply. The price will rise ; and may 
rise beyond the means or the inclinations of some of the habitual consumers, 
who may in consequence forego their accustomed indulgence, and save the 
amount. If they do not, but continue to expend as great a value as before 
on the commodity, the dealers in it obtain, for only the same quantity of the 
article, a return increased by the whole of what the spendthrift has paid ; and 
thus the amount which he loses is transferred bodily to them, and may be added 
to their capital : his increased personal consumption being made up by the 
privations of the other purchasers, who have obtained less than usual of their 
accustomed gratification for the same equivalent. On the other hand, a counter- 
process must be going on somewhere, since the prodigal must have diminished 
his purchases in some other quarter to balance the augmentation in this ; he has 
perhaps called in funds employed in sustaining productive labour, and the 
dealers in subsistence and in the instruments of production have had commodi- 
ties left on their hands, or have received, for the usual amount of commodities, 
a less than usual return. But such losses of income or capital, by industrious 
persons except when of extraordinary amount, are generally made up by 
increased pinching and privation ; so that the capital of the community may 
not be, on the whole, impaired, and the prodigal may have had his seK-indul- 
gence at the expense not of the permanent resources, but of the temporary 
pleasures and comforts of others. For in every case the community are poorer 
by what any one spends, unless others are in consequence led to curtail their 
spending. There £^,re yet other and more recondite ways in which the profusion 
of some may bring about its compensation in the extra savings of others ; but 
these can only be considered in that part of the Foarth Book, which treats of 
the limiting principle to the accumulation of capital* 



74 BOOK I. CHAPTER V. § 7 

from ancestors, and similar expressions, the idea suggested is 
that the riches so transmitted were produced long ago, at the time 
when they are said to have been first acquired, and that no portion 
of the capital of the country was produced this year, except as much 
as may have been this year added to the total amount. The fact 
is far otherwise. The greater part, in value, of the wealth now 
existing in England has been produced by human hands within 
the last twelve months. A very small proportion indeed of that 
large aggregate was in existence ten years ago ; — of the present 
productive capital of the country scarcely any part, except farm- 
houses and manufactories, and a few ships and machines ; and 
even these would not in most cases have survived so long, if fresh 
labour had not been employed within that period in putting them 
into repair. 'The land subsists, and the land is almost the only 
thing that subsists. Everything which is produced perishes, and 
most things very quickly. Most kinds of capital are not fitted 
by their nature to be long preserved. There are a few, and but 
a few productions, capable of a very prolonged existence. West- 
minster Abbey has lasted many centuries, with occasional repairs ; 
some Grecian sculptures have existed above two thousand years ; 
the Pyramids perhaps double or treble that time. But these were 
objects devoted to unproductive use. If we except bridges and 
aqueducts (to which may in some countries be added tanks and 
embankments), there are few instances of any edifice applied to 
industrial purposes which has been of great duration ; such build- 
ings do not hold out against wear and tear, nor is it good economy 
to construct them of the sohdity necessary for permanency. Capital 
is kept in existence from age to age not by preservation, but by 
perpetual reproduction : every part of it is used and destroyed, 
generally very soon after it is produced, but those who consume 
it are employed meanwhile in producing more. The growth of 
capital is similar to the growth of population. Every individual who 
is born, dies, but in each year the number born exceeds the number 
who die : the population, therefore, always increases, though not 
one person of those composing it was ahve until a very recent date. 

§ 7. This perpetual consumption and reproduction of capital 
affords the explanation of what has so often excited wonder, the 
great rapidity with which countries recover from a state of devasta- 
tion ; the disappearance, in a short time, of all traces of the mischiefs 
done by earthquakes, floods, hurricanes, and the ravages of war. 



FUNDAMENTAL PROPOSITIONS ON CAPITAL 75 

An enemy lays waste a country by fire and sword, and destroys 
or carries away nearly all the moveable wealth existing in it : all 
the inhabitants are ruined, and yet, in a few years after, everything 
is much as it was before. This vis medicatrix naUirce has been a 
subject of sterile astonishment, or has been cited to exemplify the 
wonderful strength of the principle of saving, which can repair 
such enormous losses in so brief an interval. There is nothing 
at all wonderful in the matter. What the enemy have destroyed, 
would have been destroyed in a little time by the inhabitants 
themselves : the wealth which they so rapidly reproduce, would 
have needed to be reproduced and would have been reproduced 
in any case, and probably in as short a time. Nothing is changed; 
except that during the reproduction they have not now the advan- 
tage of consuming what had been produced previously. The possi- 
bility of a rapid repair of their disasters mainly depends on whether 
the country has been depopulated. If its effective population 
have not been extirpated at the time, and are not starved afterwards ; 
then, with the same skill and knowledge which they had before, 
with their land and its permanent improvements undestroyed, 
and the more durable buildings probably unimpaired, or only 
partially injured, they have nearly all the requisites for their former 
amount of production. If there is as much of food left to them, 
or of valuables to buy food, as enables them by any amount of 
privation to remain alive and in working condition, they wiH in a 
short time have raised as great a produce, and acquired collectively 
as great wealth and as great a capital, as before ; by the mere 
continuance of that ordinary amount of exertion which they are 
accustomed to employ in their occupations. Nor does this evince 
any strength in the principle of saving, in the popular sense of the 
term, since what takes place is not intentional abstinence, but 
involuntary privation. 

Yet so fatal is the habit of thinking through the medium of only 
one set of technical phrases, and so Httle reason have studious men 
to value themselves on being exempt from the very same mental 
infirmities which beset the vulgar, that this simple explanation 
was never given (so far as I am aware) by any poHtical economist 
before Dr. Chalmers ; a writer many of whose opinions I think erro- 
neous, but who has always the merit of studying phenomena at first 
hand, and expressing them in a language of his own, which often 
uncovers aspects of the truth that the received phraseologies only 
tend to hide. 



76 BOOK I. CHAPTER V. § 8 

§ 8. The same author carries out this train of thought to some 
important conclusions on another closely connected subject, that 
of government loans for war purposes or other unproductive ex- 
penditure. These loans, being drawn from capital (in lieu of taxes, 
which would generally have been paid from income, and made up in 
part or altogether by increased economy) must, according to the 
principles we have laid down, tend to impoverish the country : yet 
the years in which expenditure of this sort has been on the greatest 
scale have often been years of great apparent prosperity : the 
wealth and resources of the country, instead of diminishing, have 
given every sign of rapid increase during the process, and of greatly 
expanded dimensions after its close. This was confessedly the case 
with Great Britain during the last long Continental war; and it 
would take some space to enumerate all the unfounded theories 
in political economy to which that fact gave rise, and to which it 
secured temporary credence ; almost all tending to exalt unproduc- 
tive expenditure, at the expense of productive. Without entering 
into all the causes which operated, and which commonly do operate, 
to prevent these extraordinary drafts on the productive resources 
of a country from being so much felt as it might seem reasonable 
to expect, we will suppose the most unfavourable case possible : 
that the whole amount borrowed and destroyed by the government 
was abstracted by the lender from a productive employment in 
which it had actually been invested. The capital, therefore, of the 
country, is this year diminished by so much. But unless the amount 
abstracted is something enormous, there is no reason in the nature 
of the case why next year the national capital should not be as great 
as ever. The loan cannot have been taken from that portion of 
the capital of the country which consists of tools, machinery, and 
buildings. It must have been wholly drawn from the portion em- 
ployed in paying labourers : and the labourers will suffer accordingly. 
But if none of them are starved ; if their wages can bear such an 
amount of reduction, or if charity interposes between them and 
absolute destitution, there is no reason that their labour should 
produce less in the next year than in the year before. If they 
produce as much as usual, having been paid less by so many millions 
sterling, these millions are gained by their employers. The breach 
made in the capital of the country is thus instantly repaired, but 
repaired by the privations and often the real misery of the labouring 
class. Here is ample reason why such periods, even in the most 
unfavourable circumstanceSj may easily be times of great gain 



FUNDAMENTAL PROPOSITIONS ON CAPITAL 77 

to ttose whose prosperity usually passes, in the estimation of society, 
for national prosperity.* 

This leads to the vexed question to which Dr. Chalmers has very 
particularly adverted ; whether the funds required by a government 
for extraordinary unproductive expenditure, are best raised by loans, 
the interest only being provided by taxes, or whether taxes should 
be at once laid on to the whole amount ; which is called in the 
financial vocabulary, raising the whole of the supplies within the 
year. Dr. Chalmers is strongly for the latter method. He says, 
the common notion is that in calling for the whole amount in one 
year, you require what is either impossible, or very inconvenient ; 
that the people cannot, without great hardship, pay the whole at 
once out of their yearly income ; and that it is much better to require 
of them a small payment every year in the shape of interest, than so 
great a sacrifice once for all. To which his answer is, that the 
sacrifice is made equally in either case. Whatever is spent, cannot 
but be drawn from yearly income. The whole and every part of 
the wealth produced in the country forms, or helps to form, the 
yearly income of somebody. The privation which it is supposed 
must result from taking the amount in the shape of taxes is not 
avoided by taking it in a loan. The suffering is not averted, but 
only thrown upon the labouring classes, the least able, and who 

* On the other hand, it must be remembered that war abstracts from pro- 
ductive employment not only capital, but likewise labourers ; that the funds 
withdrawn from the remuneration of productive labourers are partly employed 
in paying the same or other individuals for unproductive labour ; and that by 
this portion of its effects war expenditure acts in precisely the opposite manner 
to that which Dr. Chalmers points out, and, so far as it goes, directly coun- 
teracts the effects described in the text. So far as labourers are taken from 
production, to man the army and navy, the labouring classes are not damaged, 
the capitalists are '}iot benefited, and the general produce of the country is 
diminished, by war expenditure. Accordingly, Dr. Chalmers's doctrine, though 
true of this country, is wholly inapplicable to countries differently circum- 
stanced ; to France, for example, during the Napoleon wars. At that period 
the draught on the labouring population of France, for a long series of years, was 
enormous, while the funds which supported the war were mostly supplied by 
contributions levied on the countries overrun by the French arms, a very small 
proportion alone consisting of French capital. In France, accordingly, the 
wages of labour did not fall, but rose ; the employers of labour were not benefited, 
but injured ; while the wealth of the country was impaired by the suspension or 
total loss of so vast an amount of its productive labour. In England all this 
was reversed. England employed comparatively few additional soldiers and 
sailors of her own, while she diverted hundreds of millions of capital from 
productive employment, to supply munitions of war and support armies for 
her Continental allies. Consequently, as shown in the text, her labourers 
suffered, her capitalists prospered, and her permanent productive resources did 
not fall off. 



78 BOOK I. CHAPTER V. § 8 

least ought, to bear it : while all the inconveniences, physical, moral, 
and political, produced by maintaining taxes for the perpetual 
payment of the interest, are incurred in pure loss. Whenever 
capital is withdrawn from production, or from the fund destined 
for production, to be lent to the State, and expended unproduc- 
tively, that whole sum is withheld from the labouring classes : the 
loan, therefore, is in truth paid off the same year ; the whole of the 
sacrifice necessary for paying it off is actually made : only it is paid 
to the wrong persons, and therefore does not extinguish the claim ; 
and paid by the very worst of taxes, a tax exclusively on the labour- 
ing class. And after having, in this most painful and unjust way, 
gone through the whole effort necessary for extinguishing the debt, 
the country remains charged with it, and with the payment of its 
interest in perpetuity. 

These views appear to me strictly just, in so far as the value 
absorbed in loans would otherwise have been employed in productive 
industry within the country. The practical state of the case, 
however, seldom exactly corresponds with this supposition. The 
loans of the less wealthy countries are made chiefly with foreign 
capital, which would not, perhaps, have been brought in to be 
invested on any less security than that of the government : while 
those of rich and prosperous countries are generally made, not with 
funds withdrawn from productive employment, but with the new 
accumulations constantly making from income, and often with a 
part of them which, if not so taken, would have migrated to colonies, 
or sought other investments abroad. In these cases (which will be 
more particularly examined hereafter*), the sum wanted may be 
obtained by loan without detriment to the labourers, or derangement 
of the national industry, and even perhaps with advantage to 
both, in comparison with raising the amount by taxation, since taxes, 
especially when heavy, are almost always partly paid at the expense 
of what would otherwise have been saved and added to capital. 
Besides, in a country which makes so great yearly additions to its 
wealth that a part can be taken and expended unproductively 
without diminishing capital, or even preventing a considerable 
increase, it is evident that even if the whole of what is so taken, 
would have become capital, and obtained employment in the 
country, the effect on the labouring classes is far less prejudicial, 
and the case against the loan system much less strong, than in the 
case first supposed. This brief anticipation of a discussion which 
* Infra, book iv. chaps, iv. v. 



FUNDAMENTAL PROPOSITIONS ON CAPITAL 79 

will find its proper place elsewhere appeared necessary to prevent 
false inferences from the premises previously laid down. 

§ 9. We now pass to a fourth fundamental theorem respecting 
Capital, which is, perhaps, oftener overlooked or misconceived 
than even any of the foregoing. (jVTiat supports and employs 
productive labour, is the capital expended in setting it to work, 
and not the demand of purchasers for the produce of the labour 
when completed?) Demand for commodities is not demand for 
labour. The demand for commodities determines in what particular 
branch of production the labour and capital shall be employed ; 
it determines the direction of the labour ; but not the more or less 
of the labour itself, or of the maintenance or payment of the labour. 
These depend on the amount of the capital, or other funds directly 
devoted to the sustenance and remuneration of labour. 

Suppose, for instance, that there is a demand for velvet ; a fund 
ready to be laid out in buying velvet, but no capital to estabhsh the 
manufacture. It is of no consequence how great the demand may 
be ; unless capital is attracted into the occupation, there will be 
no velvet made, and consequently none bought ; unless, indeed, 
the desire of the intending purchaser for it is so strong, that he em- 
ploys part of the price he would have paid for it in making advances 
to work-people, that they may employ themselves in making 
velvet ; that is, unless he converts part of his income into capital, 
and invests that capital in the manufacture. Let us now reverse 
the hypothesis, and suppose that there is plenty of capital ready for 
making velvet, but no demand. Velvet will not be made ; but 
there is no particular preference on the part of capital for 
making velvet. Manufacturers and their labourers do not produce 
for the pleasure of their customers, but for the supply of their own 
wants; and, having still the capital and the labour which are the 
essentials of production, they can either produce something else 
which is in demand, or if there be no other demand, they themselves 
have one, and can produce the things which they want for their own 
consumption. So that the employment afforded to labour does not 
depend on the purchasers, but on the capital.^ I am, of course, 
not taking into consideration the effects of a sudden change. If 
the demand ceases unexpectedly, after the commodity to supply it 
is already produced, this introduces a different element into the 

* [This sentence replaced in the 3rd ed. (1852) the original text: "So that 
the capital cannot be dispensed with — the purchasers can."] 



80 BOOK I. CHAPTER V. § 9 

question : tlie capital has actually been consumed in producing some- 
thing which nobody wants or uses, and it has therefore perished, and 
the employment which it gave to labour is at an end, not because 
there is no longer a demand, but because there is no longer a capital. 
This case therefore does not test the principle. The proper test is, 
to suppose that the change is gradual and foreseen, and is attended 
with no waste of capital, the manufacture being discontinued by 
merely not replacing the machinery as it wears out, and not re- 
investing the money as it comes in from the sale of the produce. 
The capital is thus ready for a new employment, in which it will 
maintain as much labour as before. The manufacturer and his 
work-people lose the benefit of the skill and knowledge which they 
had acquired in the particular business, and which can only be 
partially of use to them in any other ; and that is the amount of 
loss to the community by the change. But the labourers can still 
work ; and the capital which previously employed them will, either 
in the same hands, or by being lent to others, employ either those 
labourers or an equivalent number in some other occupation. 

This theorem, that to purchase produce is not to employ labour ; 
that the demand for labour is constituted by the wages which precede 
the production, and not by the demand which may exist for the 
commodities resulting from the production ; is a proposition which 
greatly needs all the illustration it can receive. It is, to common 
apprehension, a paradox ; and even among political economists 
of reputation, I can hardly point to any, except Mr. Kicardo and M. 
Say, who have kept it constantly and steadily in view. Almost all 
others occasionally express themselves as if a person who buys com- 
modities, the produce of labour, was an employer of labour, and 
created a demand for it as really, and in the same sense, as if he 
bought the labour itself directly, by the payment of wages. It is 
no wonder that poHtical economy advances slowly, when such a 
question as this still remains open at its very threshold. ^ I appre- 

\ hend, that if by demand for labour be meant the demand by which 
wages are raised, or the number of labourers in employment increased, 

i demand for commodities does not constitute demand for labour., 

1 [The rest of this paragraph replaced in tlie 3rd ed. (1852) the original text : 
" I am desirous of impressing on the reader that a demand for commodities 
does not in any manner constitute a demand for labour, but only determines 
into a particular channel a portion, more or less considerable, of the demand 
already existing. It determines that a part of the labour and capital of the 
community shall be employed in producing certain things instead of other 
things. The demand for labour is constituted solely by the funds directly set 
apart for the use of labourers."] 



FUNDAMENTAL PROPOSITIONS ON CAPITAL 81 

I conceive that a person who buys commodities and consumes them 
himself, does no good to the labouring classes ; and. that it is only by 
what he abstains from consuming, and expends in direct payments 
to labourers in exchange for labour, that he benefits the labouring 
classes, or adds anything to the amount of their employment. 

For the better illustration of the principle, let us put the following 
case. A consumer may expend his income either in buying services, 
or commodities. He may employ part of it in hiring journeyman I 
bricklayers to build a house, or excavators to dig artificial lakes, I 
or labourers to make plantations and lay out pleasure grounds ; | 
or, instead of this, he may expend the same value in buying velvet I 
and lace. The question is, whether the difference between these ^ 
two modes of expending his income affects the interest of the 
labouring classes. It is plain that in the first of the two cases he » 
employs labourers, who will be out of employment, or at least out \ 
of that employment, in the opposite case. But those from whom 
1 differ say that this is of no consequence, because in buying 
velvet and lace he equally employs labourers, namely, those who 
make the velvet and lace. I contend, however, that in this last 
case he does not employ labourers ; but merely decides in what 
kind of work some other person shall employ them. The con- 
sumer does not with his own funds pay to the weavers and 
lacemakers their day's wages. He buys the finished commodity, 
which has been produced by labour and capital, the labour not being 
paid nor the capital furnished by him, but by the manufacturer. 
Suppose that he had been in the habit of expending this portion 
of his income in hiring journeyman bricklayers, who laid out the 
amount of their wages in food and clothing, which were also pro- 
duced by labour and capital. He, however, determines to prefer 
velvet, for which he thus creates an extra demand. This demand 
cannot be satisfied without an extra supply, nor can the supply 
be produced without an extra capital: where, then, is the capital 
to come from ? There is nothing in the consumer's change of 
purpose which makes the capital of the country greater than it 
otherwise was. It appears, then, that the increased demand for 
velvet could not for the present be supplied, were it not that the very 
circumstance which gave rise to it has set at liberty a capital of the 
exact amount required. The very sum which the consumer now 
employs in buying velvet, formerly passed into the hands of journey- 
man bricklayers, who expended it in food and necessaries, which they 
now either go without, or squeeze by their competition from the 



82 . BOOH I. CHAPTER V. § 9 

shares of other labourers. The labour and capital, therefore, which 
formerly produced necessaries for the use of these bricklayers, are 
deprived of their market, and must look out for other employment ; 
and they find it in making velvet for the new demand. I do not 
mean that the very same labour and capital which produced the 
necessaries turn themselves to producing the velvet ; but, in some 
one or other of a hundred modes, they take the place of that which 
does. There was capital in existence to do one of two things — to 
make the velvet, or to produce necessaries for the journeyman 
bricklayers ; but not to do both. It was at the option of the con- 
sumer which of the two should happen ; and if he chooses the velvet, 
they go without the necessaries. 

1 For further illustration, let us suppose the same case reversed. 
The consumer has been accustomed to buy velvet, but resolves to 
discontinue that expense, and to employ the same annual sum in 
hiring bricklayers. If the common opinion be correct, this change 
in the mode of his expenditure gives no additional employment to 
labour, but only transfers employment from velvet-makers to 
bricklayers. On closer inspection, however, it will be seen that 
there is an increase of the total sum appHed to the remuneration 
of labour. The velvet manufacturer, supposing him aware of the 
diminished demand for his commodity, diminishes the production, and 
sets at Hberty a corresponding portion of the capital employed in the 
manufacture. This capital, thus withdrawn from the maintenance 
of velvet-makers, is not the same fund with that which the customer 
employs in maintaining bricklayers ; it is a second fund. There are, 
therefore, two funds to be employed in the maintenance and remuner- 
ation of labour, where before there was only one. There is not a trans- 
fer of employment from velvet-makers to bricklayers ; there is a 
new employment created for bricklayers, and a transfer of employ- 
ment from velvet-makers to some other labourers, most probably 
those who produce the food and other things which the bricklayers 
consume. 

In answer to this it is said, that though money laid out in buying 
velvet is not capital, it replaces a capital ; that though it does not 
create a new demand for labour, it is the necessary means of enabling 
the existing demand to be kept up. The funds (it may be said) 
of the manufacturer, while locked up in velvet, cannot be directly 

1 [In the 2nd ed. (1849) there was here inserted " a different mode of stating 
the argument.'* In the 3rd ed. (1852) this became the long footnote of this 
section ; and five new paragraphs were inserted at this point.] 



FU^DAAIENTAL PROPOSITIONS ON CAPITAL 

applied to the maintenance of labour ; they do not begin to consti- 
tute a demand for labour until the velvet is sold, and the capital 
which made it replaced from the outlay of the purchaser ; and thus, 
it may be said, the velvet-maker and the velvet-buyer have not two 
capitals, but only one capital between them, which by the act of 
purchase the buyer transfers to the manufacturer, and if instead of 
buying velvet he buys labour, he simply transfers this capital else- 
where, extinguishing as much demand for labour in one quarter as he 
creates in another. 

The premises of this argument are not denied. To set free 
a capital which would otherwise be locked up in a form useless 
for the support of labour, is, no doubt, the same thing to the 
interests of labourers as the creation of a new capital. It is per- 
fectly true that if I expend 1000?. in buying velvet, I enable the 
manufacturer to employ lOOOL in the maintenance of labour, 
which could not have been so employed while the velvet remained 
unsold : and if it would have remained unsold for ever unless 
I bought it, then by changing my purpose, and hiring bricklayers 
instead, I undoubtedly create no new demand for labour : for while 
I employ lOOOZ. in hiring labour on the one hand, I annihilate 
for ever lOOOZ. of the velvet-maker's capital on the other. But 
this is confounding the effects arising from the mere suddenness 
of a change with the effects of the change itself. If when the 
buyer ceased to purchase, the capital employed in making velvet 
for his use necessarily perished, then his expending the same 
amount in hiring bricklayers would be no creation, but merely 
a transfer, of employment. The increased employment which I 
contend is given to labour, would not be given unless the capital 
of the velvet-maker could be Hberated, and would not be given 
until it ivas liberated. But every one knows that the capital 
invested in an employment can be withdrawn from it, if sufficient 
time be allowed. If the velvet-maker had previous notice, by 
not receiving the usual order, he will have produced 1000?. less 
velvet, and an equivalent portion of his capital will have been 
already set free. If he had no previous notice, and the article 
consequently remains on his hands, the increase of his stock will 
induce him next year to suspend or diminish his production until 
the surplus is carried off. When this process is complete, the 
manufacturer will find himself as rich as before, with undiminished 
power of employing labour in general, though a portion of his 
capital will now be employed in maintaining some other kind o{ 



84 BOOK I. CHAPTER V. § 9 

it. Until this adjustment lias taken place, tlie demand for labour 
will be merely changed, not increased : but as soon as it has taken 
place, the demand for labour is increased. Where there was formerly 
only one capital employed in maintaining weavers to make lOOOL 
worth of velvet, there is now that same capital employed in making 
something else, and lOOOL distributed among bricklayers besides. 
There are now two capitals employed in remunerating two sets 
of labourers ; while before, one of those capitals, that of the cus- 
tomer, only served as a wheel in the machinery by which the other 
capital, that of the manufacturer, carried on its employment of 
labour from year to year. 

The proposition for which I am contending is in reality equivalent 
to the following, which to some minds will appear a truism, though 
to others it is a paradox : that a person does good to labourers, 
not by what he consumes on himself, but solely by what he does 
not so consume. If instead of laying out 1001. in wine or silk, I 
expend it in wages, the demand for commodities is precisely equal 
in both cases : in the one, it is a demand for 100?. worth of wine 
or silk, in the other, for the same value of bread, beer, labourers* 
clothing, fuel, and indulgences : but the labourers of the com- 
munity have in the latter case the value of lOOZ. more of the produce 
of the community distributed among them. I have consumed 
that much less, and made over my consuming power to them. 
If it were not so, my having consumed less would not leave more 
to be consumed by others ; which is a manifest contradiction. 
When less is not produced, what one person forbears to consume 
is necessarily added to the share of those to whom he transfers his 
power of purchase. In the case supposed I do not necessarily 
consume less ultimately, since the labourers whom I pay may 
build a house for me, or make something else for my future consump- 
tion. But I have at aU events postponed my consumption, and 
have turned over part of my share of the present produce 
of the community to the labourers. If after an interval I am 
indemnified, it is not from the existing produce, but from a 
subsequent addition made to it. I have therefore left more of the 
existing produce to be consumed by others ; and have put into the 
possession of labourers the power to consume it. 

1 There cannot be a better reductio ad ahsurdum of the opposite 
doctrine than that afforded by the Poor Law. If it be equally for 
the benefit of the labouring classes whether I consume my means 
1 [This paragraph was inserted in the 6th ed. (1865).] 



FUNDAMENTAL PROPOSITIONS ON CAPITAL 85 

in the form of things purchased for my own use, or set aside a 
portion in the shape of wages or alms for their direct consumption, on 
what ground can the policy be justified of taking my money from 
me to support paupers ? since my unproductive expenditure would 
have equally benefited them, while I should have enjoyed it too. 
If society can both eat its cake and have it, why should it not 
be allowed the double indulgence ? But common sense tells every 
one in his own case (though he does not see it on the larger scale), 
that the poor rate which he pays is really subtracted from his own 
consumption, and that no shifting of payment backwards and 
forwards will enable two persons to eat the same food. If he had 
not been required to pay the rate, and had consequently laid out 
the amount on himself, the poor would have had as much less for 
their share of the total produce of the country, as he himself would 
have consumed more.* 

* [1849] The following case, which presents the argument in a somewhat 
different shape, may serve for still further illustration. 

Suppose that a rich individual, A, expends a certain amount daily in wages 
or alms, which, as soon as received, is expended and consumed, in the form of 
coarse food, by the receivers. A dies, leaving his property to B, who dis- 
continues this item of expenditure, and expends in lieu of it the same sum 
each day in delicacies for his own table. I have chosen this supposition, in 
order that the two cases may be similar in all their circumstances, except that 
which is the subject of comparison. In order not to obscure the essential facts 
of the case by exhibiting them through the hazy medium of a money transaction, 
let us further suppose that A, and B after him, are landlords of the estate on 
which both the food consumed by the recipients of A's disbursements, and 
the articles of luxury supplied for B's -table, are produced ; and that their 
rent is paid to them in kind, they giving previous notice what description 
of produce they shall require. The question is, whether B's expenditure 
gives as much employment or as much food to his poorer neighbours as A's 
gave. 

From the case as stated, it seems to follow that while A lived, that portion 
of his income which he expended in wages or alms, would be drawn by him from 
the farm in the shape of food for labourers, and would be used as such ; while 
B, who came after him, would require, instead of this, an equivalent value 
in expensive articles of food, to be consumed in his own household : that 
the farmer, therefore, would, under B's regime, produce that much less, of 
ordinary food, and more of expensive deHcacies, for each day of the year than 
was produced in A's time, and that there would be that amount less of food 
shared, throughout the year, among the labouring and poorer classes. This is 
what would be conformable to the principles laid down in the text. Those 
who think differently, must, on the other hand, suppose that the luxuries 
required by B would be produced, not instead of, but in addition to, the food 
previously suppHed to A's labourers, and that the aggregate produce of the 
country would be increased in amount. But when it is asked, how this double 
production would be effected — how the farmer, whose capital and labour 
were already fuUy employed, would be enabled to supply the new wants of 
B, without producing less of other things ; the only mode which presents itself 
is, that he should first produce the food, and then, giving that food to the 



86 BOOK I. CHAPTER V. § 9 

It appears, then, that a demand delayed until the work is 
completed, and furnishing no advances, but only reimbursing 
advances made by others, contributes nothing to the demand for 
labour ; and that what is so expended, is, in all its efiects, so far as 

labourers whom A formerly fed, should by means of their labour, produce the 
luxuries wanted by B. This, accordingly, when the objectors are hard 
pressed, appears to be really their meaning. But it is an obvious answer, 
that, on this supposition, B must wait for his luxuries till the second year, 
and they are wanted this year. By the original hypothesis, he consumes 
his luxurious dinner day by day, pari passu with the rations of bread and 
potatoes formerly served out by A to his labourers. There is not time to feed 
the labourers first, and supply B afterwards : he and they cannot both have 
their wants ministered to : he can only satisfy his own demand for commodities, 
by leaving as much of theirs, as was formerly supplied from that fund, 
unsatisfied. 

It may, indeed, be rejoined by an objector, that since, on the present 
showing, time is the only thing wanting to render the expenditure of B con- 
sistent with as large an employment to labour as was given by A, why may we 
not suppose that B postpones his increased consumption of personal luxuries 
until they can be furnished to him by the labour of the persons whom A 
employed ? In that case, it may be said, he would employ and feed as much 
labour as his predecessors. Undoubtedly he would ; but why ? Because his 
income would be expended in exactly the same manner as his predecessor's ; 
it would be expended in wages. A reserved from his personal consumption 
a fund which he paid away directly to labourers ; B does the same, only instead 
of paying it to them himself, he leaves it in the hands of the farmer who pays it 
to them for him. On this supposition, B, in the first year, neither expending 
the amount, as far as he is personally concerned, in A's manner nor in his own, 
really saves that portion of his income, and lends it to the farmer. And if, 
in subsequent years, confining himself within the year's income, he leaves the 
farmer in arrears to that amount, it becomes an additional capital, with which 
the farmer may permanently employ and feed A's labourers. Nobody pretends 
that such a change as this, a change from spending an income in wages of labour 
to saving it for investment, deprives any labourers of employment. What is 
affirmed to have that effect is, the change from hiring labourers to buying 
commodities for personal use ; as represented by our original hypothesis. 

In our illustration we have supposed no buying and selling, or use of money. 
But the case as we have put it, corresponds with actual fact in everything 
except the details of the mechanism. The whole of any country is virtually a 
single farm and manufactory, from which every member of the community 
draws his appointed share of the produce, having a certain number of counters, 
called pounds sterling, put into his hands, which, at his convenience, he brings 
back and exchanges for such goods as he prefers, up to the limit of the amount. 
He does not, as in our imaginary ease, give notice beforehand what things he 
shall require ; but the dealers and producers are quite capable of finding it out 
by observation, and any change in the demand is promptly followed by an 
adaptation of the supply to it. If a consumer changes from paying away a 
part of his income in wages, to spending it that same day (not some subsequent 
and distant day) in things for his own consumption, and perseveres in this 
altered practice until production has had time to adapt itself to the alteration 
of demand, there will from that time be less food and other articles for the 
use of labourers, produced in the country, by exactly the value of the extra 
luxuries now demanded ; and the labourers, as a class, will be worse off by the 
precise amount. 



FUNDAMENTAL PROPOSITIONS ON CAPITAL 87 

regards the employment of the labouring class, a mere nullity ; it 
does not and cannot create any employment except at the expense 
of other employment which existed before. 

But though a demand for velvet does nothing more in regard 
to the employment for labour and capital, than to determine so 
much of the employment which already existed, into that particular 
channel instead of any other ; still, to the producers already engaged 
in the velvet manufacture, and not intending to quit it, this is of 
the utmost importance. To them, a falling off in the demand is a 
real loss, and one which, even if none of their goods finally perish 
unsold, may mount to any height, up to that which would make 
them choose, as the smaller evil, to retire from the business. On 
the contrary, an increased demand enables them to extend their 
transactions — to make a profit on a larger capital, if they have it, 
or can borrow it ; and, turning over their capital more rapidly, they 
will employ their labourers more constantly, or employ a greater 
number than before. So that an increased demand for a commodity 
does really, in the particular department, often cause a greater 
employment to be given to labour by the same capital. The mistake 
lies in not perceiving that, in the cases supposed, this advantage 
is given to labour and capital in one department, only by being 
withdrawn from another ; and that, when the change has produced 
its natural effect of attracting into the employment additional capital 
proportional to the increased demand, the advantage itself ceases. 

The grounds of a proposition, when well understood, usually 
give a tolerable indication of the Hmitations of it. ^he general 
principle, now stated, is that demand for commodities determines 
irierely the direction of labour, and the kind of wealth produced, 
but not the quantity or efficiency of the labour, or the aggregate 
of wealth. ') But to this there are two exceptions. First, when 
labour is supported, but not fully occupied, , a new demand for 
something which it can produce may stimulate the labour thus 
supported to increased exertions, of which the result may be an 
increase of wealth, to the advantage of the labourers themselves 
and of others. Work which can be done in the spare hours of 
persons subsisted from some other source, can (as before remarked) 
be undertaken without withdrawing capital from other occupations, 
beyond the amount (often very small) required to cover the expense 
of tools and materials, and even this will often be provided by 
savings made expressly for the purpose. The reason of our theorem 
thus failing, the theorem itself fails, and employment of this kind 



88 BOOK I. CHAPTER V. § 10 

may, by the springing up of a demand for the commodity, be called 
into existence without depriving labour of an equivalent amount 
of employment in any other quarter. The demand does not, even 
in this case, operate on labour any otherwise than through the 
medium of an existing capital, but it affords an inducement which 
causes that capital to set in motion a greater amount of labour than 
it did before. 

1 The second exception, of which I shall speak at length in a 
subsequent chapter, consists in the known effect of an extension 
of the market for a commodity, in rendering possible an increased 
development of the division of labour, and hence a more effective 
distribution of the productive forces of society. This, like the 
former, is more an exception in appearance than it is in reality. 
It is not the money paid by the purchaser, which remunerates 
the labour ; it is the capital of the producer : the demand only 
determines in what manner that capital shall be employed, and 
what kind of labour it shall remunerate ; but if it determines that 
the commodity shall be produced on a large scale, it enables the 
same capital to produce more of the commodity, and may, by an 
indirect effect in causing an increase of capital, produce an eventual 
increase of the remuneration of the labourer. 

The demand for commodities is a consideration of importance, 
rather in the theory of exchange, than in that of production. Looking 
at things in the aggregate, and permanently, the remuneration of 
the producer is derived from the productive power of his own 
capital. The sale of the produce for money, and the subsequent 
expenditure of the money in buying other commodities, are a 
mere exchange of equivalent values for mutual accommodation. 
It is true that, the division of employments being one of the principal 
means of increasing the productive power of labour, the power of 
exchanging gives rise to a great increase of the produce ; but even 
then it is production, not exchange, which remunerates labour 
and capital. We cannot too strictly represent to ourselves the 
operation of exchange, whether conducted by barter or through 
the medium of money, as the mere mechanism by which each person 
transforms the remuneration of his labour or of his capital into 
the particular shape in which it is most convenient to him to possess 
it ; but in no wise the source of the remuneration itself. 

§ 10. The preceding principles demonstrate the fallacy of 
^ [This paragraph was inserted in the 6th ed. (1865).] 



FUNDAMENTAL PROPOSITIONS ON CAPITAL 89^ 

many popular arguments and doctrines, which are continually 
reproducing themselves in new forms. For example, it has been 
contended, and by some from whom better things might have been 
expected, that the argument for the income-tax, grounded on its 
falling on the higher and middle classes only, and sparing the poor, 
is an error ; some have gone so far as to say, an imposture ; because 
in taking from the rich what they would have expended among the 
poor, the tax injures the poor as much as if it had been directly 
levied from them. Of this doctrine we now know what to think. 
So far, indeed, as what is taken from the rich in taxes, would, if not 
so taken, have been saved and converted into capital, or even ex- 
pended in the maintenance and wages of servants or of any class 
of unproductive labourers^ to that extent the demand for labour is 
no doubt diminished, and the poor injuriously afiected, by the 
tax on the rich ; and as these effects are almost always produced 
in a greater or less degree, it is impossible so to tax the rich as 
that no portion whatever of the tax can fall on the poor. But even 
here the question arises, whether the government, after receiving 
the amount, will not lay out as great a portion of it in the direct 
purchase of labour, as the taxpayers would have done. In regard 
to all that portion of the tax, which, if not paid to the government, 
would have been consumed in the form of commodities (or even 
expended in services if the payment has been advanced by a 
capitalist), this, according to the principles we have investigated, 
falls definitely on the rich, and not at all on the poor. There is 
exactly the same demand for labour, so far as this portion is con- 
cerned, after the tax, as before it. The capital which hitherto 
employed the labourers of the country remains, and is still capable 
of employing the same number. There is the same amount of 
produce paid in wages, or allotted to defray the feeding and clothing 
of labourers. 

If those against whom I am now contending were in the right, 
it would be impossible to tax anybody except the poor. If it is 
taxing the labourers, to tax what is laid out in the produce of labour, 
the labouring classes pay all the taxes. The same argument, however, 
equally proves, that it is impossible to tax the labourers at all; 
since the tax, being laid out either in labour or in commodities, 
comes all back to them ; so that taxation has the singular property 
of falling on nobody. On the same showing, it would do the labourers 
no harm to take from them all they have, and distribute it among 
the other members of the community. It would all be " spent 



90 BOOK I. CHAPTER V. § 10 

among them," whicli on tMs theory comes to the same thing. The 
error is produced by not looking directly at the reahties of the 
phenomena, but attending only to the outward mechanism of paying 
and spending. If we look at the effects produced not on the money, 
which merely changes hands, but on the commodities which are 
used and consumed, we see that, in consequence of the income-tax, 
the classes who pay it do really diminish their consumption. Exactly 
so far as they do this, they are the persons on whom the tax falls. 
It is defrayed out of what they would otherwise have used and 
enjoyed. So far, on the other hand, as the burthen falls, not on 
what they would have consumed, but on what they would have 
saved to maintain production, or spent in maintaining or paying 
unproductive labourers, to that extent the tax forms a deduction 
from what would have been used and enjoyed by the labouring 
classes. But if the government, as is probably the fact, expends 
fully as much of the amount as the tax-payers would have done 
in the direct employment of labour, as in hiring sailors, soldiers, 
and policemen, or in paying off debt, by which last operation it 
even increases capital ; the labouring classes not only do not lose 
any employment by the tax, but may possibly gain some, and 
the whole of the tax falls exclusively where it was intended. 

All that portion of the produce of the country which any one, 
not a labourer,! actually and literally consumes for his own use, 
does not contribute in the smallest degree to the maintenance of 
labour. No one is benefited by mere consumption, except the 
person who consumes. And a person cannot both consume his income 
himself, and make it over to be consumed by others. Taking away 
a certain portion by taxation cannot deprive both him and them of 
it, but only him or them. To know which is the sufferer, we must 
understand whose consumption will have to be retrenched in 
consequence : this, whoever it be, is the person on whom the tax 
really falls.^ 

1 [" Not a labourer " was inserted in the 3rd ed. (1852).] 

2 [See Appendix F. Fundamental Propositions on Capital.} 



CHAPTER VI 

ON CIRCULATING AND FIXED CAPITAL 

§ 1. To complete our explanations on the subject of capital, it' 
is necessary to say something of the two species into which it is 
usually divided. The distinction is very obvious, and though not 
named, has been often adverted to, in the two preceding chapters : 
but it is now proper to define it accurately, and to point out a few 
of its consequences. 

Of the capital engaged in the production of any commodity, 
there is a part which, after being once used, exists no longer as 
capital : is no longer capable of rendering service to production, or 
at least not the same service, nor to the same sort of production. 
Si»ch, for example, is the portion of capital which consists of materials. 
The tallow and alkali of which soap is made, once used in the manu- 
facture, are destroyed as alkali and tallow ; and cannot be employed 
any furtKer in the soap manufacture, though in their altered con- 
dition, as soap, they are capable of being used as a material or 
an instrument in other branches of manufacture. In the same 
division must be placed the portion of capital which is paid as the 
wages, or consumed as the subsistence, of labourers. The part 
of the capital of a cotton-spinner which he pays away to his work- 
people, once so paid, exists no longer as his capital, or as a cotton- 
spinner's capital : such portion of it as the workmen consume, 
no longer exists as capital at all : even if they save any part, it 
may now be more properly regarded as a fresh capital, the result 
of a second act of accumulation. Capital which in this manner \ 
fulfils the whole of its office in the production in which it is engaged 1 
by a single use, is^caUed Circulating Capital. The term, which is ' 
not very appropriate, is derived from the circumstance, that this 
portion of capital requires to be constantly renewed by tTie sale 
of the finished product, and when renewed is perpetually parted with 
in buying materials and paying wages ; so that it does its work, 
not by being kept, but by changing hands. / 



02 ^ BOOK 1. CHAPTER VI. § 1 

Another large portion of capital, however, consists in instruments 
of production, of a more or less permanent character ; which produce 
their efiect not by being parted with, but by being kept ; and the 
efficacy of which is not exhausted by a single use. To this class 
belong buildings, machinery, and aU or most things known by 
the name of implements or tools. The durability of some of these 
is considerable, and their function as productive instruments is 
prolonged through many repetitions of the productive operation. 
In this class must likewise be included capital sunk (as the expression 
is) in permanent improvements of land. So also the capital expended 
once for all, in the commencement of an undertaking, to prepare 
the way for subsequent operations : the expense of opening a 
mine, for example : of cutting canals, of making roads or docks. 
Other examples might be added, but these are sufficient. Capital 
which exists in any of these durable shapes, and the return to which 
is spread over a period of corresponding duration, is called Fixed 
Capital. 

^ Of fixed capital, some kinds require to be occasionally or periodi- 
cally renewed. Such are all implements and buildings : they 
require, at intervals, partial renewal by means of repairs, and axe 
at last entirely worn out, and cannot be of any further service as 
buildings and implements, but fall back into the class of materials. 
In other cases, the capital does not, unless as a consequence of some 
unusual accident, require entire renewal : but there is always 
some outlay needed, either regularly or at least occasionally, to keep 
it up. A dock or a canal, once made, does not require, hke a 
machine, to be made again, unless purposely destroyed, or unless an 
earthquake or some similar catastrophe has filled it up : but regular 
and frequent outlays are necessary to keep it in repair. The cost 
of opening a mine needs not be incurred a second time ; but unless 
some one goes to the expense of keeping the mine clear of water, 
it is soon rendered useless. The most permanent of all kinds of 
fixed capital is that employed in giving increased productiveness 
to a natural agent, such as land. The draining of marshy or in- 
undated tracts like the Bedford Level, the reclaiming of land from 
the sea, or its protection by embankments, are improvements 
calculated for perpetuity ; but drains and dykes require frequent 
repairs. The same character of perpetuity belongs to the improve- 
ment of land by subsoil draining, which adds so much to the pro- 
ductiveness of the clay soils ; or by permanent manures, that is, 
by the addition to the soil, not of the substances which enter into 



CIRCULATING AND FIXED CAPITAL 93 

the composition of vegetables, and which are therefore consumed 
by vegetation, but of those which merely alter the relation of the soil 
to air and water ; as sand and lime on the heavy soils, clay and marl 
on the Hght. Even such works, however, require some, though 
it may be very Httle, occasional outlay to maintain their full effect. 
These improvements, however, by the very fact of their deserving 
that title, produce an increase of return, which, after defraying 
all expenditure necessary for keeping them up, still leaves a surplus. 
This surplus ft)rms the return to the capital sunk in the first instance, 
and that return does not, as in the case of machinery, terminate 
by the wearing out of the machine, but continues for ever. The 
land, thus increased in productiveness, bears a value in the market 
proportional to the increase : and hence it is usual to consider 
the capital which was invested, or sunk, in making the improvement, 
as still existing in the increased value of the land. There must 
be no mistake, however. The capital, like all other capital, has 
been consumed. It was consumed in maintaining the labourers 
who executed the improvement, and in the wear and tear of the 
tools by which they were assisted. But it was consumed pro- 
ductively, and has left a permanent result in the improved pro- 
ductiveness of an appropriated natural agent, the land. "We 
may call the increased produce the joint result of the land and of 
a capital fixed in the land. _^But as the capital, having in reahty 
been consumed, cannot be withdrawn, its productiveness is thence- 
forth indissolubly blended with that arising from the original 
quaUties of the soil ; and the remuneration for the use of it thence- 
forth depends, not upon the laws which govern the returns to labour 
and capital, but upon those which govern the recompense for 
natural agents. What these are, we shall see hereafter.* 

§ 2. ^here is a great difference between the effects of circulating 
and those of fixed capital, on the amount of the gross produce of the 
^country. Circulating capital being destroyed as such, or at any 
rate finally lost to the owner, by a single use ; and the product 
resulting from that one use being the only source from which the 
owner can replace the capital, or obtain any remuneration for its 
productive employment ; the product must of course be sufficient for 
those purposes, or in other words, the result of a single use must 
be a reproduction equal to the whole amount of the circulating 
capital used, and a profit besides. This, however, is by no means 
* Infra, book iL chap. xvi. On Rent. 



94 BOOK I. CHAPTER VI. § 2 

necessary in tlie case of fixed capital. Since macliinery, for example, 
is not wholly consumed by one use, it is not necessary that it should 
be wholly replaced from the product of that use. The machine 
answers the purpose of its owner if it brings in, during each interval 
of time, enough to cover the expense of repairs, and the deterioration 
in value which the machine has sustained during the same time, 
with a surplus sufficient to yield the ordinary profit on the entire 
value of the machine. 

From this it follows that all increase of fixed capital, when taking 
place at the expense of circulating, must be, at least temporarily, 
prejudicial to the interests of the labourers. This is true, not of 
machinery alone, but of all improvements by which capital is sunk ; 
that is, rendered permanently incapable of being apphed to the 
maintenance and remuneration of labour. Suppose that a person 
farms his own land, with a capital of two thousand quarters of corn, 
employed in maintaining labourers during one year (for simpUcity 
we omit the consideration of seed and tools), whose labour pro- 
duces him annually two thousand four hundred quarters, being a 
profit of twenty per cent/ This profit we shall suppose that he 
annually consumes, carrying on his operations from year to year on 
the original capital of two thousand quarters. Let us now suppose 
that by the expenditure of half his capital he effects a permanent 
improvement of his land, which is executed by half his labourers, 
and occupies them for a year, after which he will only require, 
for the effectual cultivation of his land, half as many labourers as 
before. The remainder of his capital he employs as usual. In 
the first year there is no difference in the condition of the labourers, 
except that part of them have received the same pay for an opera- 
tion on the land, which they previously obtained for ploughing, 
sowing, and reaping. At the end of the year, however, the improver 
has not, as before, a capital of two thousand quarters of corn. Only 
one thousand quarters of his capital have been reproduced in the 
usual way : he has now only those thousand quarters and his im- 
provement. He will employ, in the next and in each following 
year, only half the number of labourers, and will divide among them 
only half the former quantity of subsistence. The loss will soon 
be made up to them if the improved land, with the diminished 
quantity of labour, produces two thousand four hundred quarters 
as before, because so enormous an accession of gain will probably 
induce the improver to save a part, add it to his capital, and become 
a larger employer of labour. But it is conceivable that this may not 



CIKCULATING AND FIXED CAPITAL 95 

be tlie case ^ ; for (supposing, as we may do, that tlie improvement 
will last indefinitely, without any outlay worth mentioning to keep 
it up) the improver will have gained largely by his improvement 
if the land now yields, not two thousand four hundred, but one 
thousand five hundred quarters ; since this will replace the one 
thousand quarters forming his present circulating capital, with a 
profit of twenty-five per cent (instead of twenty as before) on the 
whole capital, fixed and circulating together. The improvement, 
therefore, may be a very profitable one to him, and yet very injurious 
to the labourers. 

2 The supposition, in the terms in which it has been stated, is 
purely ideal ; or at most appHcable only to such a case as that of 
the conversion of arable land into pasture, which, though formerly 
a frequent practice, is regarded [1849] by modern agriculturists 
as the reverse of an improvement.* But this does not afiect the 
substance of the argument. Suppose that the improvement does 
not operate in the manner supposed — does not enable a part of 
the labour previously employed on the land to be dispensed with — 
but only enables the same labour to raise a greater produce. Suppose, 
too, that the greater produce, which by means of the improvement 
can be raised from the soil with the same labour, is all wanted, and 
will find purchasers. The improver will in that case require the 
same number of labourers as before, at the same wages. But where 
will he find the means of paying them ? He has no longer hia 
original capital of two thousand quarters disposable for the purpose. 
One thousand of them are lost and gone — consumed in making the 
improvement. If he is to employ as many labourers as before, and 
pay them as highly, he must borrow, or obtain from some other 
source, a thousand quarters to supply the deficit. But these 
thousand quarters already maintained, or were destined to maintain, 

^ [So altered in 2nd ed. (1849) from the original : " this may not, and often 
will not, be the case."] 

2 [The first two sentences of this paragraph were inserted in the 2nd ed. 
(1849), and the subsequent sentences slightly changed in form.] 

* [1865] The clearing away of the small farmers in the North of Scotland, 
within the present century, was, however, a case of it ; and Ireland, since the 
potato famine and the repeal of the corn laws, is another. The remarkable 
decrease which has lately attracted notice in the gross produce of Irish agricul- 
ture, is, to all appearance, partly attributable to the diversion of land from 
maintaining human labourers to feeding cattle ; and it could not have taken 
place without the removal of a large part of the Irish population by emigration 
or death. We have thus two recent instances, in which what was regarded as an 
agricultural improvement, has diminished the power of the country to support 
its population. The effect, however, of aU the improvements due to modem 
science is to increase, or at all events, i^ot to diminish, the gross produce. 



9(y BOOK L GHAPTEK VI. § 2 

an equivalent quantity of labour. They are not a fresh creation ; 
their destination is only changed from one productive employment 
to another ; and though the agriculturist has made up the deficiency 
in his own circulating capital, the breach in the circulating capital 
of the community remains unrepaired. 

The argument relied on by most of those who contend that 
machinery can never be injurious to the labouring class, is, that by 
cheapening production it creates such an increased demand for the 
commodity, as enables, ere long, a greater number of persons than 
ever to find employment in producing it. This argument does not 
seem to me to have the weight commonly ascribed to it. The 
fact, though too broadly stated, is, no doubt, often true. The 
copyists who were thrown out of employment by the invention of 
printing, were doubtless soon outnumbered by the compositors and 
pressmen who took their place ; and the number of labouring persons 
now occupied in the cotton manufacture is many times greater 
than were so occupied previously to the inventions of Hargreaves 
and Arkwright, which shows that, besides the enormous fixed 
capital now embarked in the manufacture, it also employs a far 
larger circulating capital than at any former time. But if this 
capital was drawn from other employments ; if the funds which 
took the place of the capital sunk in costly machinery, were supplied 
not by any additional saving consequent on the improvements, 
but by drafts on the general capital of the community ; what better 
were the labouring classes for the mere transfer ? In what manner 
was the loss they sustained by the conversion of circulating into fixed 
capital made up to them by a mere shifting of part of the remainder 
of the circulating capital from its old employments to a new one ? 

All attempts to make out that the labouring classes as a collective 
body cannot suffer temporarily by the introduction of machinery, or 
by the sinking of capital in permanent improvements, are, I conceive, 
necessarily fallacious. That they would suffer in the particular 
department of industry to which the change applies, is generally 
admitted, and obvious to common sense ; but it is often said, that 
though employment is withdrawn from labour in one department, 
an exactly equivalent employment is opened for it in others, because 
what the consumers save in the increased cheapness of one particular 
article enables them to augment their consumption of others, thereby 
increasing the demand for other kinds of labour. This is plausible^ 
but, as was shown in the last chapter, involves a fallacy ; demand 
for commodities being a totally different thing from demand for 



CIRCULATING AND FIXED CAPITAL 9? 

labour. It is true, the consumers have now additional means of 
buying other things ; but this will not create the other things, 
unless there is capital to produce them, and the improvement has not 
set at Hberty any capital, if even it has not absorbed some from 
other employments. The supposed increase of production and of 
employment for labour in other departments therefore will not take 
place ; and the increased demand for commodities by some con- 
sumers, will be balanced by a cessation of demand on the part of 
others, namely, the labourers who were superseded by the improve- 
ment, and who will now be maintained, if at all, by sharing, either in 
the way of competition or of charity, in what was previously con- 
sumed by other people. 

§ 3. Nevertheless, I do not beUeve that, as things are actually 
transacted, improvements in production are often, if ever, injurious, 
even temporarily, to the labouring classes in the aggregate. They 
would be so if they took place suddenly to a great amount, because 
much of the capital sunk must necessarily in that case be provided 
from funds already employed as circulating capital. But improve- 
ments are always introduced very gradually, and are seldom or 
never made by withdrawing circulating capital from actual produc- 
tion, but are made by the employment of the annual increase. There 
are few if any examples of a great increase of fixed capital, at a time 
and place where circulating capital was not rapidly increasing 
likewise. It is not in poor or backward countries that great and 
costly improvements in production are made. To sink capital in 
land for a permanent return — to introduce expensive machinery — 
are acts involving immediate sacrifice for distant objects ; and 
indicate, in the first place, tolerably complete security of property ; 
in the second, considerable activity of industrial enterprise ; and in 
the third, a high~ standard of what has been called the " effective 
desire of accumulation:" which three^ things are the elements 
of a society rapidly progressive in its amount of capital. Although, 
therefore, the labouring classes must suffer, not only if the increase 
of fixed capital takes place at the expense of circulating, but even if 
it is so large and rapid as to retard that ordinary increase to which 
the growth of population has habitually adapted itseK ; yet, in 
point of fact, this is very unHkely to happen, since there is probably 
no country whose fixed capital increases in a ratio more than pro- 
portional to its circulating. If the whole of the railways which, 
during the speculative madness of 1845, obtained the sanction of 



98 BOOK I. CHAPTER VI. § 3 

Parliament, had been constructed in the times fixed for the com 
pletion of each, this improbable contingency would, most likely, 
have been reahzed ; but this very case has afforded a striking 
example of the difficulties which oppose the diversion into new 
channels, of any considerable portion of the capital that suppUes 
the old : difficulties generally much more than sufficient to prevent 
enterprises that involve the sinking of capital from extending 
themselves with such rapidity as to impair the sources of the existing 
employment for labour. 

To these considerations must be added, that even if improve- 
ments did for a time decrease the aggregate produce and the circulat- 
ing capital of the community, they would not the less tend in the 
long-run to augment both. They increase the return to capital; 
and of this increase the benefit must necessarily accrue either to the 
capitaHst in greater profits, or to the customer in diminished prices ; 
affording, in either case, an augmented fund from which accumula- 
tion may be made, while enlarged profits also hold out an increased 
inducement to accumulation. In the case we before selected, 
in which the immediate result of the improvement was to diminish 
the gross produce from two thousand four hundred quarters to one 
thousand five hundred, yet the profit of the capitalist being now 
five hundred quarters instead of four hundred, the extra one hun- 
dred quarters, if regularly saved, would in a few years replace the 
one thousand quarters subtracted from his circulating capital. 
Now the extension of business which almost certainly follows in 
any department in which an improvement has been made, affords 
a strong inducement to those isngaged in it to add to their capital ; 
and hence, at the slow pace at which improvements are usually 
introduced, a great part of the capital which the improvement 
ultimately absorbs, is drawn from the increased profits and increased 
savings which it has itself called forth. 

This tendency of improvements in production to cause increased 
accumulation, and thereby ultimately to increase the gross produce, 
even if temporarily diminishing it, will assume a still more decided 
character if it should appear that there are assignable Hmits both to 
the accumulation of capital, and to the increase of production from 
the land, which limits once attained, all further increase of produce 
must stop ; but that improvements in production, whatever may 
be their other effects, tend to throw one or both of these Hmits farther 
off. Now, these are truths which will appear in the clearest light in 
•»> subsequent stage of our investigation. It will be seen, that the 



CIRCULATING AND FIXED CAPITAL 99 

quantity of capital which will, or even which can, be accumulated 
in any country and the amount of gross produce which will, or even 
which can, be raised, bear a proportion to the state of the arts of 

\ production there existing ; and that every improvement, even 
if for the time it diminish the circulating capital and the gross 
produce, ultimately makes room for a larger amount of both, than 
could possibly have existed otherwise. It is this which is the con- 

■ 'elusive answer to the objections against machinery ; and the proof 
thence arising of the ultimate benefit to labourers of mechanical 
inventions, even in the existing state of society, will hereafter be seen 
to be conclusive.* But this does not discharge governments from the 
obligation of alleviating, and if possible preventing, the evils of 
which this source of ultimate benefit is or may be productive to an 
existing generation. If the sinking or fixing of capital in machinery 
or useful works were ever to proceed at such a pace as to impair 
materially the funds for the maintenance of labour, it would be 
incumbent on legislators to take measures for moderating its rapidity: 
and since improvements which do not diminish employment on the 
whole, almost always throw some particular class of labourers out of 
it, there cannot be a more legitimate object of the legislator's care 
than the interests of those who are thus sacrificed to the gains of 
their fellow-citizens and of posterity. 

To return to the theoretical distinction between fixed and cir- 
culating capital. v^Since all wealth which is destined to be employed 
for reproduction comes within the designation of capital, there are 
parts of capital which do not agree with the definition of either 
species of it ; for instance^ the stock of finished goods which a manu ■ 
facturer or dealer at any time possesses unsold in his warehouses. 
But this, though capital as to its destination, is not yet capital in 
actual exercise : it is not engaged in production, but has first to 
be sold or exchanged, that is, converted into an equivalent value 
of some other commodities ; and therefore is not yet either fixed 
or circulating capital ; but will become either one or the other, or be 
eventually divided between them. With the proceeds of his finished 
goods, a manufacturer will partly pay his work-people, partly 
replenish his stock of the materials of his manufacture, and partly 
provide new buildings and machinery, or repair the old ; but how 
much wiU be devoted to one purpose, and how much to another, 
depends on the nature of the manufacture, and the requirements of 
the particular moment. 

* Infra, book iv. chap. v. 



100 BOOK I. CHAPTER VI. § 3 

It should be observed further, that the portion of capital con- 
sumed in the form of seed or material, though, unhke fixed capital, 
it requires to be at once replaced from the gross produce, stands 
yet in the same relation to the employment of labour as fixed 
capital does. What is expended in materials is as much withdrawn 
from the maintenance and remuneration of labourers, as what is 
fixed in machinery ; and if capital now expended in wages were 
diverted to the providing of materials, the effect on the labourers 
would be as prejudicial as if it were converted into fixed capital. 
This, however, is a kind of change which seldom, if ever, takes place. 
The tendency of improvements in production is always to economize, 
never to increase, the expenditure of seed or material for a given 
produce ; and the interest of the labourers has no detriment to 
apprehend from this source. 



CHAPTER VII 

ON WHAT DEPENDS THE DEGREE OF PRODUCTIVENESS 
OF PRODUCTIVE AGENTS 

§ 1. We have concluded our general survey of the requisites 
Ox production. We have found that they may be reduced to three : 
labour, capital, and the materials and motive forces afforded by 
nature. Of these, labour and the raw material of the globe are 
primary and indispensable. Natural motive powers may be called 
in to the assistance of labour, and are a help, but not an essential, 
of production. The remaining requisite, capital, is itself the product 
of labour ; its instrumentaUty in production is therefore, in reality, 
that of labour in an indirect shape. It does not the less require 
to be specified separately. A previous apphcation of labour to 
produce the capital required for consumption during the work, is no 
less essential than the apphcation of labour to the work itself. Of 
capital, again, one, and by far the largest, portion, conduces to 
production only by sustaining in existence the labour which pro- 
duces : the remainder, namely the instruments and materials, 
contribute to it directly, in the same manner with natural agents, 
and the materials suppHed by nature. 

We now advance to the second great question in poHtical economy ; 
on what the degree of productiveness of these agents depends. 
For it is evident that their productive efficacy varies greatly at 
various times and places. With the same population and extent 
of territory, some countries have a much larger amount of production 
than others, and the same country at one time a greater amount 
than itself at another. Compare England either with a similar 
extent of territory in Russia, or with an equal population of Russians. 
Compare England no\v with England in the Middle Ages ; Sicily, 
Northern Africa, or Syria at present, with the same countries at the 
time of their greatest prosperity, before the Roman Conquest. Some 
of the causes which contribute to this difference of productiveness 



102 BOOK I. CHAPTER VII. § 2 

are obvious ; others not so much so. We proceed to specify 
several of them. 

§ 2. The most evident cause of superior productiveness is what are 
called natural advantages. These are various. Fertihty of soil is 
one of the principal. In this there are great varieties, from the deserts 
of Arabia to the alluvial plains of the Ganges, the Niger, and the Missis- 
si?ppi. A favourable climate is even more important than a rich soil. 
There are countries capable of being inhabited, but too cold to be 
compatible with agriculture. Their inhabitants cannot pass beyond 
the nomadic state ; they must live, like the Laplanders, by the 
domestication of the rein-deer, if not by hunting or fishing, Uke the 
miserable Esquimaux. There are countries where oats will ripen, 
but not wheat, such as the North of Scotland ; others where wheat 
can be grown, but from excess of moisture and want of sunshine, 
affords but a precarious crop ; as in parts of Ireland. With each 
advance towards the south, or, in the European temperate region, 
towards the east, some new branch of agriculture becomes first 
possible, then advantageous ; the vine, maize, silk, figs, olives, rice, 
dates, successively present themselves, until we come to the sugar, 
coffee, cotton, spices, &c., of chmates which also afford, of the more 
common agricultural products, and with only a slight degree of 
cultivation, two or even three harvests in a year. Nor is it in 
agriculture alone that differences of climate are important. Their 
influence is felt in many other branches of production : in the 
durabihty of all work which is exposed to the air ; of buildings, for 
example. If the temples of Karnac and Luxor had not been injured 
by men, they might have subsisted in their original perfection almost 
for ever, for the inscriptions on some of them, though anterior to all 
authentic history, are fresher than is in our chmate an inscription 
fifty years old : while at St. Peteraburg, the most massive works, 
sohdly executed in granite hardly a generation ago, are already, 
as travellers tell us, almost in a state to require reconstruction, 
from alternate exposure to summer heat and intense frost. The 
superiority of the woven fabrics of Southern Europe over those of 
England in the richness and clearness of many of their colours, is 
ascribed to the superior quality of the atmosphere, for which neither 
the knowledge of chemists nor the skill of dyers has been able to 
provide, in our hazy and damp climate, a complete equivalent. 

Another part of the influence of climate consists in lessening 
the physical requirements of the producers. In hot regions, 



DEGREES OF PRODUCTIVENESS . 103 

mankind can exist in comfort with less perfect housing, less clothing ; 
fuel, that absolute necessary of hfe in cold chmates, they can almost 
dispense with, except for industrial uses. They also require less 
ahment ; as experience had proved, long before theory had accounted 
for it by ascertaining that most of what we consume as food is not 
required for the actual nutrition of the organs, but for keeping up 
the animal heat, and for supplying the necessary stimulus to the vital 
functions, which in hot chmates is almost sufficiently supphed by 
air and sunshine. Much, therefore, of the labour elsewhere expended 
to procure the mere necessaries of life, not being required, more 
remains disposable for its higher uses and its enjoyments ; if the 
character of the inhabitants does not rather induce them to use 
up these advantages, in over-population, or in the indulgence of 
repose. 

Among natural advantages, besides soil and climate, must be 
mentioned abundance of mineral productions, in convenient situa- 
tions, and capable of being worked with moderate labour. Such are 
the coal-fields of Great Britain, which do so much to compensate its 
inhabitants for the disadvantages of cUmate ; and the scarcely 
inferior resource possessed by this country and the United States, in 
a copious supply of an easily reduced iron ore, at no great depth 
below the earth's surface, and in close proximity to coal deposits 
available for working it. In mountain and hill districts, the abun- 
dance of natural water-power makes considerable amends for the 
usually inferior fertihty of those regions. But perhaps a greater 
advantage than all these is a maritime situation, especially when 
accompanied with good natural harbours ; and, next to it, great 
navigable rivers. These advantages consist indeed wholly in saving 
of cost of carriage. But few who have not considered the subject, 
have any adequate notion how great an extent of economical 
advantage this comprises ; nor, without having considered the 
influence exercised on production by exchanges, and by what is 
called the division of labour, can it be fully estimated. So important 
is it, that it often does more than counterbalance sterility of soil, 
and almost every other natural inferiority ; especially in that earlv 
stage of industry in which labour and science have not yet provided 
artificial means of communication capable of rivalling the natural. 
In the ancient world, and in the Middle Ages, the most prosperous 
communities were not those which had the largest territory, or the 
most fertile soil, but rather those which had been forced by natural 
sterility to make the utmost use of a convenient maritime situation ; 



104 BOOK L CHAPTER VII. § 3 

as AthenSj Tyre, Marseilles, Venice, the free cities on the Baltic, and 
the Hke. 

§ 3. So much for natural advantages ; the value of which, 
cceteris paribus, is too ob^dous to be ever underrated. But experience 
testifies that natural advantages scarcely ever do for a community, 
no more than fortune and station do for an individual, anything like 
what it lies in their nature, or in their capacity, to do. Neither now 
nor in former ages have the nations possessing the best cHmate and 
soil been either the richest or the most powerful ; but (in so far as 
regards the mass of the people) generally among the poorest, though, 
in the midst of poverty, probably on the whole the most enjoying. 
Human life in those countries can be supported on so little, that the 
poor seldom suffer from anxiety, and in chmates in which mere 
existence is a pleasure, the luxury which they prefer is that of repose. 
Energy, at the call of passion, they possess in abundance, but not 
that which is manifested in sustained and persevering labour : and 
as they seldom concern themselves enough about remote objects 
to establish good political institutions, the incentives to industry are 
fui'ther weakened by imperfect protection of its fruits. Successful 
production, like most other kinds of success, depends more on the 
quahties of the human agents, than on the circumstances in which 
they work : and it is difficulties, not facihties, that nourish bodily 
and mental energy. Accordingly the tribes of mankind who have 
overrun and conquered others, and compelled them to labour for 
their benefit, have been mostly reared amidst hardship. They have 
either been bred in the forests of northern climates, or the deficiency 
of natural hardships has been suppUed, as among the Greeks and 
Romans, by the artificial ones of a rigid military discipline. From 
the time when the circumstances of modern society permitted the 
discontinuance of that discipHne, the South has no longer produced 
conquering nations ; mihtary vigour, as well as speculative thought 
and industrial energy, have all had their principal seats in the less 
favoured North. 

As the second, therefore, of the causes of superior productiveness, 
we may rank the greater energy of labour. By this is not to be 
understood occasional, but regular and habitual energy. No one 
undergoes, without murmuring, a greater amount of occasional 
fatigue and hardship, or has his bodily powers, and such faculties 
of mind as he possesses, kept longer at their utmost stretch, than 
the North American Indian ; yet his indolence is proverbial, when- 



DEGREES OF PRODUCTIVENESS 105 

ever he has a brief respite from the pressure of present wants. 
Individuals, or nations, do not differ so much in the efforts they are 
able and willing to make under strong immediate incentives, as in 
their capacity of present exertion for a distant object ; and in the 
thoroughness of their apphcation to work on ordinary occasions.''- 
Some amount of these quaUties is a necessary condition of any great 
improvement among mankind. To civihze a savage, he must be 
inspired with new wants and desires, even if not of a very elevated 
kind, provided that their gratification can be a motive to steady 
and regular bodily and mental exertion. If the negroes of Jamaica 
and Demerara, after their emancipation, had contented themselves, 
as it was predicted they would do, with the necessaries of hfe, and 
abandoned aU labour beyond the Httle which in a tropical climate, 
with a thin population and abundance of the richest land, is sufficient 
to support existence, they would have sunk into a condition more 
barbarous, though less unhappy, than their previous state of slavery. 

^ [From the 4th ed. (1857) a long passage was omitted at this point. This 
originally ran as follows : 

" In this last quality the English, and perhaps the Anglo-Americans, appear 
at present to surpass every other people. This efi&ciency of labour is connected 
with their whole character ; with their defects, as much as with their good 
quahties. The majority of Englishmen and Americans have no life but in 
their work ; that alone stands between them and ennui. Either from original 
temperament, climate, or want of development, they are too deficient in senses 
to enjoy mere existence in repose ; and scarcely any pleasure or amusement is 
pleasure or amusement to them. Except, therefore, those who are ahve to some 
of the nobler interests of humanity (a small minority in all countries), they have 
little to distract their attention from work, or to divide the dominion over them 
with the one propensity which is the passion of those who have no other, and 
the satisfaction of which comprises all that they imagine of success in life — the 
desire of growing richer, and getting on in the world. This last characteristic 
belongs chiefly to those who are in a condition superior to day labourers ; but 
the absence of any taste for amusement, or enjoyment of repose, is common to 
all classes. Whether from this or any other cause, the national steadiness and 
persistency of labour extends to the most improvident of the Enghsh working 
classes — those who never think of saving, or improving their condition. It has 
become the habit of the country ; and Hfe in England is more governed by 
habit, and less by personal inclination and will, than in any other country, except 
perhaps China or Japan. The effect is, that where hard labour is the thing 
required, there are no labourers like the English ; though in natural intelligence, 
and even in manual dexterity, they have many superiors. 

" Energy of labour, though not an unquaUfied good, nor one which it is 
desirable to nourish at the expense of other valuable attributes of human nature, 
is yet, in a certain measure, a necessary condition," &c. 

In the 3rd ed. (1852) the characterisation had been made to apply to the 
Enghsh alone, and the passage began thus : " This last quality is the principal 
industrial excellence of the English people." After " a small minority in all 
countries," had been inserted "and particularly so in this;" and for "no 
labourers like the Enghsh " had been substituted " no better labourers than the 
Enghsh."] 



106 Book: i. chapter vii. § 3 

The motive which was most relied on for inducing them to work was 
their love of fine clothes and personal ornaments. No one will stand 
up for this taste as worthy of being cultivated, and in most societies 
its indulgence tends to impoverish rather than to enrich ; but in the 
state of mind of the negroes it might have been the only incentive 
that could make them voluntarily undergo systematic labour, and 
so acquire or maintain habits of voluntary industry which may be 
converted to more valuable ends. In England, it is not the desire 
of wealth that needs to be taught, but the use of wealth, and appre- 
ciation of the objects of desire which wealth cannot purchase, 
or for attaining which it is not required. Every real improvement 
in the character of the English, whether it consist in giving them 
higher aspirations, or only a juster estimate of the value of their 
present objects of desire, must necessarily moderate the ardour of 
their devotion to the pursuit of wealth. There is no need, however, 
that it should diminish the strenuous and business-Uke appUcation 
to the matter in hand, which is found in the best English workmen, 
and is their most valuable quality.^ 

^ [The three preceding sentences originally ran as follows : " As much as 
the industrial spirit required to be stimulated in their case, so much does it 
require to be moderated in such countries as England and the United States. 
There, it is not the desire of wealth . . . required. Every real improvement in 
the character of the English or Americans, whether it consist in giving them 
higher aspirations, or only more numerous and better pleasures, must neces- 
sarily moderate the all-engrossing torment of their industrialism ; must 
diminish, therefore, so far as it depends on that cause alone, the aggregate 
productiveness of their labour. There is no need, however, that it should 
diminish that strenuous and business-like application to the matter in hand, 
which is one of their most precious characteristics." 

In the 3rd ed. (1852) they were modified to make the description apply to 
England only, and " the best English workmen;" and in the 4th (1857) "the 
ardour of their devotion to the pursuit of wealth " was substituted for " the all- 
engrossing torment of their industrialism." 

Then followed in the original the following quotation and comments, omitted 
in the 3rd ed. : 

" ' Whoever ' (says Mr. Laing, Notes of a Traveller, p. 290) ' looks into the 
social economy of an English or Scotch manufacturing district, in which the 
population has become thoroughly imbued with the spirit of productiveness, 
will observe that it is not merely the expertness, despatch, and skill of the oper- 
ative himself, that are concerned in the prodigious amount of his production 
in a given time, but the labourer who wheels coal to his fire, the girl who makes 
ready his breakfast, the whole population, in short, from the potboy who brings 
his beer, to the banker who keeps his employer's cash, are inspired with the same 
alert spirit, are in fact working to his hand with the same quickness and punc- 
tuality as he works himself. English workmen taken to the Continent always 
complain that they cannot get on with their work as at home, because of the 
slow, unpunctual, pipe-in- mouth working habits of those who have to work 
to their hands, and on whom their own activity and productiveness mainly 
depend.' 



DEGREES OF PRODUCTIVENESS 107 

The desirable medium is one which mankind have not often 
known how to hit : when they labour, to do it with all their might, 
and especially with all their mind ; but to devote to labour, for mere 
pecuniary gain, fewer hours in the day, fewer days in the year, and 
fewer years of life. 

§ 4. The third element which determines the productiveness 
of the labour of a community, is the skill and knowledge therein 
existing ; whether it be the skill and knowledge of the labourers 
themselves, or of those who -direct their labour. No illustration is 
requisite to show how the efficacy of industry is promoted by the 
manual dexterity of those who perform mere routine processes ; 
by the inteUigence of those engaged in operations in which the mind 
has a considerable part ; and by the amount of knowledge of 
natural powers and of the properties of objects, which is turned to 
the purposes of industry. That the productiveness of the labour of a 
people is Hmited by their knowledge of the arts of life, is self-evident ; 
and that any progress in those arts, any improved appHcation of the 
objects or powers of nature to industrial uses, enables the same 
quantity and intensity of labour to raise a greater produce. 

One principal department of these improvements consists in the 
invention and use of tools and machinery. The manner in which 
these serve to increase production and to economize labour, needs not 
be specially detailed in a work Kke the present : it will be found 
explained and exempHfied, in a manner at once scientific and 
popular, in Mr. Babbage's well-known Economy of Machinery and 
Manufactures. An entire chapter of Mr. Babbage's book is 
composed of instances of the efficacy of machinery in " exerting 
forces too great for human power, and executing operations too 
deKcate for human touch." But to find examples of work which 
could not be performed at all by unassisted labour, we need not go 
so far. Without pumps, worked by steam-engines or otherwise, 
the water which collects in mines could not in many situations be 
got rid of at all, and the mines, after being worked to a httle depth, 

" Foreigners are generally quite unaware that to these qualities in English 
industry the wealth and power which they seek to emulate are in reality owing, 
and not to the ' ships, colonies, and commerce ' which these qualities have 
called into being, and which, even if annihilated, would leave England the richest 
country in the world. An Englishman, of almost every class, is the most 
efficient of all labourers, because, to use a common phrase, his heart is in hia 
work. But it is surely quite possible to put heart into his work without being 
incapable of putting it into anything else."] 



108 BOOK I. CHAPTER VII. § 5 

must be abandoned : witbout sbips or boats tbe sea could never bave 
been crossed ; witbout tools of some sort, trees could not be cut down, 
nor rocks excavated ; a plougb, or at least a boe, is necessary to any 
tillage of tbe ground. Very simple and rude instruments, bowever, 
are sufficient to render Hterally possible most works bitberto exe- 
cuted by mankind ; and subsequent inventions bave cbiefly served 
to enable tbe work to be performed in greater perfection, and, above 
all, witb a greatly diminisbed quantity of labour : tbe labour tbus 
saved becoming disposable for otber employments. 

Tbe use of macbinery is far from being tbe only mode in wbicb 
tbe effects of knowledge in aiding production are exempUfied. In 
agriculture and borticulture, macbinery is only now [1852] beginning 
to sbow tbat it can do anytbing of importance, beyond tbe invention 
and progressive improvement of tbe plougb and a few otber simple 
instruments. Tbe greatest agricultural inventions bave consisted 
in tbe direct appbcation of more judicious processes to tbe land itself, 
and to tbe plants growing on it : sucb as rotation of crops, to avoid 
tbe necessity of leaving tbe land uncultivated for one season in every 
two or tbree ; improved manures, to renovate its fertibty wben 
exbausted by cropping ; plougbing and draining tbe subsoil as well 
as tbe surface ; conversion of bogs and marsbes into cultivable land ; 
sucb modes of pruning, and of training and propping up plants and 
trees, as experience bas sbown to deserve tbe preference ; in tbe case 
of tbe more expensive cultures, planting tbe roots or seeds furtber 
apart, and more completely pulverizing tbe soil in wbicb tbey are 
placed, &c. In manufactures and commerce, some of tbe most 
important improvements consist in economizing time ; in making tbe 
return follow more speedily upon tbe labour and outlay. Tbere are 
otbers of wbicb tbe advantage consists in economy of material. 

§ 5. But tbe effects of tbe increased knowledge of a community 
in increasing its wealtb, need tbe less illustration as tbey bave 
become familiar to tbe most uneducated, from sucb conspicuous 
instances as railways and steam-sbips. A tbing not yet so well 
understood and recognised, is tbe economical value of tbe general 
diffusion of intelligence among tbe people. Tbe number of persons 
fitted to direct and superintend any industrial enterprise, or even to 
execute any process wbicb cannot be reduced almost to an affair of 
memory and routine, is always far sbort of tbe demand ; as is evident 
from tbe enormous difference between tbe salaries paid to sucb per- 
goi^s and tbe wages of ordinary labour. Tbe deficiency of practical 



DEGREES OF PRODUCTIVENESS 109 

good sense, which renders the majority of the labouring class such 
bad calculators — which makes, for instance, their domestic economy 
so improvident, lax, and irregular — must disqualify them for any 
but a low grade of intelligent labour, and render their industry far 
less productive than with equal energy it otherwise might be. The 
importance, even in this limited aspect, of popular education, is 
well worthy of the attention of politicians, especially in England ; 
since competent observers, accustomed to employ labourers of vari- 
ous nations, testify that in the workman of other countries they 
often find great intelligence wholly apart from instruction, but that 
if an EngHsh labourer is anything but a hewer of wood and a drawer 
of water, he is indebted for it to education, which in his case is almost 
always self-education. Mr. Escher, of Zurich (an engineer and cotton 
manufacturer employing nearly two thousand working men of many 
different nations), in his evidence annexed to the Report of the Poor 
Law Commissioners, in 1840, on the training of pauper children, 
gives a character of English as contrasted with Continental workmen, 
which all persons of similar experience will, I believe, confirm. 

" The ItaKans' quickness of perception is shown in rapidly 
comprehending any new descriptions of labour put into their hands, 
in a power of quickly comprehending the meaning of their employer, 
of adapting themselves to new circumstances, much beyond what 
any other classes have. The French workmen have the Uke natural 
characteristics, only in a somewhat lower degree. The EngHsh, 
Swiss, German, and Dutch workmen, we find, have all much slower 
natural comprehension. As workmen only^ the preference is un- 
doubtedly due to the EngHsh ; because, as we find them, they are 
all trained to special branches, on which they have had compara- 
tively superior training, and have concentrated all their thoughts. 
As men of business or of general usefulness, and as men with whom 
an employer would best Hke to be surrounded, I should, however, 
decidedly prefer the Saxons and the Swiss, but more especially 
the Saxons, because they have had a very careful general education, 
which has extended their capacities beyond any special employment, 
and rendered them fit to take up, after a short preparation, any 
employment to which they may be caUed. If I have an EngHsh 
workman engaged in the erection of a steam-engine, he wiU under- 
stand that, and nothing else ; and for other circumstances or other 
branches of mechanics, however closely aUied, he will be com- 
paratively helpless to adapt himself to all the circumstances that 
may arise; to make arrangements for them, and give sound advice 



110 BOOK I. CHAPTER VII. § 5 

or write clear statements and letters on his work in the various 
related branches of mechanics." ' 

On the connexion between mental cultivation and moral trust- 
worthiness in the labouring class, the same witness says, *' The 
better educated workmen, we find, are distinguished by superior 
moral habits in every respect. In the first place, they are entirely 
sober ; they are discreet in their enjoyments, which are of a more 
rational and refined kind ; they have a taste for much better society, 
which they approach respectfully, and consequently find much 
readier admittance to it ; they cultivate music ; they read ; they 
enjoy the pleasures of scenery, and make parties for excursions 
into the country ; they are economical, and their economy extends 
beyond their own purse to the stock of their master ; they are, 
consequently, honest and trustworthy." And in answer to a question 
respecting the English workmen, " Whilst in respect to the work 
to which they have been specially trained they are the most skilful, 
they are in conduct the most disorderly, debauched, and unruly, 
and least respectable and trustworthy of any nation whatsoever 
whom we have employed ; and in saying this, I express the ex- 
perience of every manufacturer on the Continent to whom I have 
spoken, and especially of the EngHsh manufacturers, who make 
the loudest complaints. These characteristics of depravity do not 
apply to the EngUsh workmen who have received an education, 
but attach to the others in the degree in which they are in want of 
it. When the uneducated English workmen are released from the 
bonds of iron discipHne in which they have been restrained by their 
employers in England, and are treated with the urbanity and 
friendly feeling which the more educated workmen on the Continent 
expect and receive from their employers, they, the English workmen, 
completely lose their balance : they do not understand their position^ 
and after a certain time become totally unmanageable and useless." * 
This result of observation is borne out by experience in England 
iiself. As soon as any idea of equality enters the mind of an un- 
educated English working man, his head is turned by it.i When 
he ceases to be servile, he becomes insolent. 

The moral quahties of the labourers are fully as important to 
the efficiency and worth of their labour, as the intellectual. In- 
dependently of the effects of intemperance upon their bodily and 

* The whole evidence of this intelligent and experienced employer of labour 
is deserving of attention ; as well as much testimony on similar points by other 
witnesses, contained in the same volume. 

^ [This comment was added in the 3rd ed. (1352).] 



DEGREES OF PRODUCTIVENESS 111 

mental faculties, and of flighty, unsteady habits upon the energy 
and continuity of their work (points so easily understood as not 
to require being insisted upon), it is well worthy of meditation, 
how much of the aggi'egate efiect of their labour depends on their 
trustworthiness. All the labour now expended in watching that 
they fulfil their engagement, or in verifying that they have fulfilled 
it, is so much withdrawn from the real business of production, to 
be devoted to a subsidiary function rendered needful not by the 
necessity of things, but by the dishonesty of men. Nor are the 
gTeatest outward precautions more than very imperfectly efficacious, 
where, as is now almost invariably the case with hired labourers, 
the slightest relaxation of vigilance is an opportunity eagerly 
seized for eluding performance of their contract.^ The advantage 
to mankind of being able to trust one another, penetrates into 
every crevice and cranny of human life : the economical is perhaps 
the smallest part of it, yet even tliis is incalculable. To consider 
only the most obvious part of the waste of wealth occasioned to 
society by human improbity ; there is in all rich communities 
a predatory population, who five by pillaging or overreaching 
other people ; their numbers cannot be authentically ascertained, 
but on the lowest estimate, in a country like England, it is very 
large. The support of these persons is a direct burthen on the 
national industry. The police, and the whole apparatus of punish- 
ment, and of criminal and partly of civil justice, are a second burthen 
rendered necessary by the first. The exorbitantly-paid profession 
of lawyers, so far as their work is not created by defects in the law, 
of their own contriving, are required and supported prmcipaUy 
by the dishonesty of mankind. As the standard of integrity in a 
community rises higher, all these expenses become less. But this 
positive saving would be far outweighed by the immense increase 
in the produce of all kinds of labour, and saving of time and expendi- 
ture, which would be obtained if the labourers honestly performed 
what they undertake ; and by the increased spirit, the feehng of 
power and confidence, with which works of all sorts would be planned 
and carried on by those who felt that all whose aid was required 
would do their part faithfully according to their contracts. Conjoint 
action is possible just in proportion as human beings can rely on 
each other. There are countries in Europe, of first-rate industrial 

^ [This statement took the place in the 3rd ed. (1852) of the sentence : 
" Nor are the greatest outward precautions comparable in efficacy to the 
monitor within."] 



112 BOOK I. CHAPTER VII. § 5 

capabilities, where the most serious impediment to conducting 
business concerns on a large scale is the rarity of persons who 
are supposed fit to be trusted with the receipt and expenditure 
of large sums of money. There are nations whose commodities 
are looked shily upon by merchants, because they cannot depend on 
finding the quahty of the article conformable to that of the sample. 
Such short-sighted frauds are far from unexampled in English exports. 
Every one has heard of " devil's dust : " and among other instances 
given by Mr. Babbage, is one in which a branch of export trade 
was for a long time actually stopped by the forgeries and frauds 
which had occurred in it. On the other hand, the substantial 
advantage derived in business transactions from proved trust- 
worthiness, is not less remarkably exemplified in the same work. 
" At one of our largest towns, sales and purchases on a very extensive 
scale are made daily in the course of business without any of the 
parties ever exchanging a written document." Spread over a year's 
transactions, how great a return, in saving of time, trouble, and 
expense, is brought in to the producers and dealers of such a town 
from their own integrity. " The influence of estabUshed character 
in producing confidence operated in a very remarkable manner 
at the time of the exclusion of British manufactures from the 
Continent during the last war. One of our largest establishments 
had been in the habit of doing extensive business with a house 
in the centre of Germany ; but on the closing of the Continental 
ports against our manufactures, heavy penalties were inflicted 
on all those who contravened the Berhn and Milan decrees. The 
English manufacturer continued, nevertheless, to receive orders, 
with directions how to consign them, and appointments for the 
time and mode of payment, in letters, the handwriting of which 
was known to him, but which were never signed except by the 
Christian name of one of the firm, and even in some instances they 
were without any signature at all. These orders were executed, and 
in no instance was there the least irregularity in the payments." * 

* Some minor instances noticed by Mr. Babbage may be cited in further 
illustration of the waste occasioned to society tbrough the inability of its 
members to trust one another. 

" The cost to the purchaser is the price he pays for any article, added to 
the cost of verifying the fact of its having that degree of goodness for which 
he contracts. In some cases the goodness of the article is evident on mere 
inspection ; and in those cases there is not much difference of price at different 
shops. The goodness of loaf sugar, for instance, can be discerned almost at a 
glance ; and the consequence is, that the price is so uniform, and the profit 
upon it so small, that no grocer is at all anxious to sell it ; whilst on the other 



DEGREES OF PRODUCTIVENESS 113 

§ 6. Among the secondary causes which determine the pro- 
ductiveness of productive agents, the most important is Security. 
By security I mean the completeness of the protection which society 
affords to its members. This consists of protection hy the govern- 
ment, and protection against the government. The latter is the 
more important. Where a person known to possess anything 
worth taking away, can expect nothing but to have it torn from 
him, with every circumstance of tyrannical violence, by the agents 
of a rapacious government, it is not Hkely that many will exert 
themselves to produce much more than necessaries. This is the 
acknowledged explanation of the poverty of many fertile tracts 
of Asia, which were once prosperous and populous. From this 
to the degree of security enjoyed in the best governed parts of 
Europe, there are numerous gradations. In many provinces of 
France before the Eevolution, a vicious system of taxation on 
the land, and still more the absence of redress against the arbitrary 
exactions which were made under colour of the taxes, rendered it 
the interest of every cultivator to appear poor, and therefore to 
cultivate badly. The only insecurity which is altogether paralysing 

hand, tea, of which it is exceedingly difficult to judge, and which can be 
adulterated by mixture so as to deceive the skill even of a practised eye, has a 
great variety of different prices, and is that article which every grocer is most 
anxious to sell to his customers. The difficulty and expense of verification are 
in some instances so great, as to justify the deviation from well-established 
principles. Thus, it is a general maxim that Government can purchase any 
article at a cheaper rate than that at which they can manufacture it themselves. 
But it has, nevertheless, been considered more economical to build extensive 
flour-mills (such as those at Deptford), and to grind their own corn, than to 
verify each sack of purchased flour, and to employ persons in devising methods 
of detecting the new modes of adulteration which might be continually resorted 
to." A similar want of confidence might deprive a nation, such as the United 
States, of a large export trade in flour. 

Again : " Some years since, a mode of preparing old clover and trefoil seeds 
by a process called doctoring became so prevalent as to excite the attention of 
the House of Commons. It appeared in evidence before a Committee, that the 
old seed of the white clover was doctored by first wetting it shghtly, and then 
drying it by the fumes of burning sulphur ; and that the red clover seed had 
its colour improved by shaking it in a sack with a small quantity of indigo ; but 
this being detected after a time, the doctors then used a preparation of logwood, 
fined by a little copperas, and sometimes by verdigris ; thus at once improving 
the appearance of the old seed, and diminishing, if not destroying, its vegetative 
power, already enfeebled by age. Supposing no injury had resulted to good 
seed so prepared, it was proved that, from the improved appearance, the 
market price would be enhanced by this process from five to twentv-five 
shillings a hundred- weight. But the greatest evil arose from the circumstances 
of these processes rendering old and worthless seed equal in appearance to the 
best. One witness had tried some doctored seed, and found that not above one 
grain in a hundred grev/, and that those which did vegetate died away 
afterwards ; whilst about eighty or ninety per cent, of good seed usually grows. 



114 BOOK I. CHAPTER VII. § 6 

to the active energies of producers, is that arising from the govern- 
ment, or from persons invested with its authority. Against all 
other depredators there is a hope of defending oneself. Greece 
and the Greek colonies in the ancient world, Flanders and Italy 
in the Middle Ages, by no means enjoyed what any one with modern 
ideas would call security : the state of society was most unsettled 
and turbulent ; person and property were exposed to a thousand 
dangers. But they were free countries ; they were in general 
neither arbitrarily oppressed nor systematically plundered by 
their governments. Against other enemies the individual energy 
which their institutions called forth, enabled them to make successful 
resistance : their labour, therefore, was eminently productive, and 
their riches, while they remained free, were constantly on the increase. 
The Roman despotism, putting an end to wars and internal conflicts 
throughout the empire, reheved the subject population from much of 
the former insecurity : but because it left them under the grinding 
yoke of its own rapacity they became enervated and impoverished, 
until they were an easy prey to barbarous but free invaders. They 
would neither fight nor labour, because they were no longer suffered 
to enjoy that for which they fought and laboured. 

The seed so treated was sold to retail dealers in the country, who of course 
endeavoured to purchase at the cheapest rate, and from them it got into the 
hands of the farmers, neither of these classes being capable of distinguishing 
the fraudulent from the genuine seed. Many cultivators in consequence 
diminished their consumption of the articles, and others were obliged to pay a 
higher price to those who had skill to distinguish the mixed seed, and who had 
integrity and character to prevent them from dealing in it." 

The same writer states that Irish flax, though in natural quality inferior to 
none, sells, or did lately sell, in the market at a penny to twopence per pound 
less than foreign or British flax ; part of the difference arising from negligence 
in its preparation, but part from the cause mentioned in the evidence of Mr. 
Corry, many years Secretary to the Irish Linen Board : " The owners of the 
flax, who are almost always people in the lower classes of life, believe that they 
can best advance their own interests by imposing on the buyers. Flax being 
sold by weight, various expedients are used to increase it ; and every expedient 
is injurious, particularly the damping of it ; a very common practice, which 
makes the flax afterwards heat. The inside of every bundle (and the bundles 
all vary in bulk) is often full of pebbles, or dirt of various kinds, to increase the 
weight. In this state it is purchased and exported to Great Britain." 

It was given in evidence before a Committee of the House of Commons 
that the lace trade at Nottingham had greatly fallen off, from the making of 
fraudulent and bad articles : that " a kind of lace called single-press was manu- 
factured," (I still quote Mr. Babbage,) " which although good to the eye, 
became nearly spoiled in washing by the slipping of the threads ; that not one 
person in a thousand could distinguish the difference between single-press and 
double-press lace ; that even workmen and manufacturers were obliged to 
employ a magnifying-glass for that purpose ; and that in another similar article, 
called warp-lace, such aid was essential." 



DEGREES OF PRODUCTIVENESS 115 

Mucli of the security of person and property in modern nations 
is the effect of manners and opinion rather than of law. There are, 
or lately were, countries in Europe where the monarch was nominally 
absolute, but where, from the restraints imposed by established 
usage, no subject felt practically in the smallest danger of having 
his possessions arbitrarily seized or a contribution levied on them 
by the government. There must, however, be in such governments 
much petty plunder and other tyranny by subordinate agents, for 
which redress is not obtained, owing to the want of publicity which 
is the ordinary character of absolute governments. In England, 
the public are tolerably well protected, both by institutions and 
manners, against the agents of government ; but, for the security 
they enjoy against other evil-doers, they are [1848] very little 
indebted to their institutions. The laws cannot be said to afford 
protection to property, when they afford it only at such a cost as 
renders submission to injury in general the better calculation. 
The security of property in England is owing (except as regards 
open violence) to opinion, and the fear of exposure, much more than 
to the direct operation of the law and the courts of justice. 

Independently of all imperfection in the bulwarks which society 
purposely throws round what it recognises as property, there 
are various other modes in which defective institutions impede the 
employment of the productive resources of a country to the best 
advantage. We shall have occasion for noticing many of these 
in the progress of our subject. It is sufficient here to remark, that 
the efficiency of industry may be expected to be great, in proportion 
as the fruits of industry are insured to the person exerting it : and 
that aU social arrangements are conducive to useful exertion, 
according as they provide that the reward of every one for his labour 
shall be proportioned as much as possible to the benefit which it 
produces. All laws or usages which favour one class or sort of 
persons to the disadvantage of others ; which chain up the efforts of 
any part of the community in pursuit of their own good, or stand 
between those efforts and their natural fruits — are (independently 
of aU other grounds of condemnation) violations of the fundamental 
principles of economical policy ; tending to make the aggregate 
productive powers of the community productive in a less degree than 
they would otherwise be. 



CHAPTER VIII 

OF CO-OPEEATIONj OR THE COMBINATION OE LABOUB 

§ 1. In the enumeration of the circumstances which promote 
the productiveness of labour, we have left one untouched, which, 
because of its importance, and of the many topics of discussion 
which it involves, requires to be treated apart. This is co-operation, 
or the combined action of numbers. Of this great aid to production, 
a single department, known by the name of Division of Labour, 
has engaged a large share of the attention of political economists ; 
most deservedly indeed, but to the exclusion of other cases and 
exemplifications of the same comprehensive law. Mr. Wakefield 
was, I beUeve, the first to point out, that a part of the subject had, 
with injurious effect, been mistaken for the whole ; that a more ^^1 
fundamental principle Hes beneath that of the division of labour, 
and comprehends it. * 

Co-operation, he observes,* is " of two distinct kinds : first 
such co-operation as takes place when several persons help each 
other in the same employment ; I secondly, such co-operation as 
takes place when several persons help each other in different em- 
ployments. These may be termed Simple Co-operation and Complex 
Co-operation. 

" The advantage of simple co-operation is illustrated by the 
case of two greyhounds running together, which, it is said, will kill 
more hares than four greyhounds running separately. In a vast 
number of simple operations performed by human exertion, it is 
quite obvious that two men working together wiU do more than 
four, or four times four men, each of whom should work alone. In 
the Hfting of heavy weights, for example, in the felhng of trees, 
in the sawing of timber, in the gathering of much hay or corn during 
a short period of fine weather, in draining a large extent of land 
during the short season when such a work may be properly con- 

* J^ote to Wakefield's edition of Adam Smith, vol. i. p. 26. 



rj . 



COMBINATION OF LABOUR 117 

ducted, in the pulling of ropes on board ship, in the rowing of 
large boats, in some mining operations, in the erection of a scaffolding 
for building, and in the breaking of stones for the repair of a road, 
so that the whole of the road shall always be kept in good order : in 
all these simple operations, and thousands more, it is absolutely neces- 
sary that many persons should work together, at the same time, in 
the same place, and in the same way. The savages of New Holland 
never help each other, even in the most simple operations ; and 
their condition is hardly superior, in some respects it is inferior, to 
that of the wild animals which they now and then catch. Let any 
one imagine that the labourers of England should suddenly desist 
from helping each other in simple employments, and he will see 
at once the prodigious advantages of simple co-operation. In a 
comitless number of employments, the produce of labour is, up to 
a certain point, in proportion to such miitual assistance amongst 
the workmen. This is the first step m social improvement." Th^ 
second is, when " one body of men having combined their labour to 
raise more food than they require, another body of men are induced 
to combine their labour for the purpose of producing more clothes 
than they require, and with those surplus clothes buying the surplus 
food of the other body of labourers ; while, if both bodies together 
have produced more food and clothes than they both require, both 
bodies obtain, by means of exchange, a proper capital for setting 
more labourers to work in their respective occupations." To simple 
co-operation is thus superadded what Mr. Wakefield terms Complex 
Co-operation. The one^js_the combination of several labourers to 
help each other in the same set of operations ; ^e other is the com- 
bination of several labourers to help one another by a division of 
operations. 

There is " an important distinction between simple and complex 
co-operation. Of the former, one is always conscious at the time of 
practising it : it is obvious to the most ignorant and vulgar eye. i 
^ s Of the latter, but a very few of the vast numbers who practise it are 
"^ in any degree conscious. The cause of this distinction is easily 
seen. When several men are employed in Hfting the same weight, 
or pulling the same rope, at the same time, and in the same place, 
there can be no sort of doubt that they co-operate with each other ; 
the fact is impressed on the mind by the mere sense of sight ; but 
when several men, or bodies of men, are employed at different times 
and places, and in different pursuits, their co-operation with each 
other, though it may be quite as certain, is not so readily perceive^ 



/ 



v/ 



118 . BOOK I. CHAPTER VIII. § 2 

as in the other case : in order to perceive it, a complex operation 
of the mind is required." 

In the present state of society the breeding and feeding of sheep 
is the occupation of one set of people, dressing the wool to prepare 
it for the spinner is that of another, spinning it into thread of a third, 
weaving the thread into broadcloth of a fourth, dyeing the cloth of a 
fifth, making it into a coat of a sixth, without counting the multitude 
of carriers, merchants, factors, and retailers, put in requisition at 
the successive stages of this progress. All these persons, without 
knowledge of one another or previous understanding, co-operate in 
the production of the ultimate result, a coat. But these are far 
from being all who co-operate in it ; for each of these persons 
requires food, and many other articles of consumption, and unless 
he could have relied that other people would produce these for him, 
he could not have devoted his whole time to one step in the succession 
. of operations which produces one single commodity, a coat. Every 
person who took part in producing food or erecting houses for this 
series of producers, has, however unconsciously on his part, com- 
bined his labours with theirs. It is by a real, though unexpressed, 
concert, " that the body who raise more food than they want, can_ 
exchange with the body who raise more clothes than they want ; 
and if the two bodies were separated, either by distance or dis- 
inclination — unless the two bodies should virtually form themselves 
into one, for the common object of raising enough food and clothes 
for the whole — they could not divide into two distinct parts the 
whole operation of producing a sufficient quantity of food and 
clothes." 

§ 2. LThe influence exercised on production by the separation 
of employments, is more fundamental than, from the mode in which 
the subject is usually treated, a reader might be induced to suppose. j 
It is not merely that when the production of difierent things becomes 
the sole or principal occupation of different persons, a much greater 
quantity of each kind of article is produced. The truth is much 
beyond this. • Without some separation of employments, very few 
things would be produced at all. 

Suppose a set of persons, or a number of famihes, all employed 
precisely in the same manner ; each family settled on a piece of its 
own land, on which it grows by its labour the food required for its 
own sustenance, and as there are no persons to buy any surplus 
produce where all are producers, each family has to produce within 



COMBINATION OF LABOUR 119 

itself whatever other articles it consumes. In such circumstances, 
if the soil was tolerably fertile, and population did not tread too 
closely on the heels of subsistence, there would be, no doubt, some 
kind of domestic manufactures ; clothing for the family might per- 
haps be spun and woven within it, by the labour probably of the 
women (a first step in the separation of employments) ; and a 
dwelHng of some sort would be erected and kept in repair by their 
united labour. But beyond simple food (precarious, too, from the 
variations of the seasons), coarse clothing, and very imperfect lodging, 
it would be scarcely possible that the family should produce anything 
more. They would, in general, require their utmost exertions to 
accompHsh so much. Their power even of extracting food from 
the soil would be kept within narrow hmits by the quaUty of their 
tools, which would necessarily be of the most wretched description. 
To do almost anything in the way of producing for themselves 
articles of convenience or luxury, would require too much time, 
and, in many cases, their presence in a different place. Very few 
kinds of industry, therefore, would exist ; and that which did exist, 
namely the production of necessaries, would be extremely inefficient, 
not solely from imperfect implements, but because, when the ground 
and the domestic industry fed by it had been made to supply the 
necessaries of a single family in tolerable abundance, there would 

■ be httle motive, while the numbers of the family remained the same, 
to make either the land or the labour produce more. 

But suppose an event to occur, which would amount to a revolu- 
tion in the circumstances of this httle settlement. Suppose that a 
company of artificers, provided with tools, and with food sufficient 
to maintain them for a year, arrive in the country and estabUsh 
themselves in the midst of the population. These Tiew settlers 
occupy themselves in producing articles of use or ornament adapted 
to the taste of a simple people ; and before their food is exhausted 
they have produced these in considerable quantity, and are ready to 
exchange them for more food. The economical position of the landed 
population is now most materially altered. They have an oppor- 
tunity given them of acquiring comforts and luxuries. Things 
which, while they depended solely on their own labour, they never 
could have obtained, because they could not have produced, are- 
now accessible to them if they can succeed in producing an additional 
quantity of food and necessaries. They are thus incited to increase 
the productiveness of their industry. Among the conveniences for 

~T;Fe first time made accessible to them, better tools are probably 



120 BOOK I. CHAPTER VIII. § 3 

one^: and apart from tliis, they have a motive to labour more 
assiduously, and to adopt contrivances lor making their labour 
more effectual. By these means they will generally succeed in 
compeUing their land to produce, not only food for themselves, 
but a surplus for the new comers, wherewith to buy from them 
the products of their industry. The new settlers constitute what is 
called a marJcet for surplus agricultural produce : and their arrival 
has enriched the settlement not only by the manufactured article 
which they produce, but by the food which would not have been 
produced unless they had been there to consume it. 

There is no inconsistency between this doctrine, and the pro- 
position we before maintained, that a market for commodities does 
not constitute employment for labour.* The labour of the agricul- 
turists was already provided with employment ; they are not 
indebted to the demand of the new comers for being able to maintain 
themselves. What that demand does for them is, to call their labour 
into increased vigour and efficiency ; to stimulate them, by new 
motives, to new exertions. Neither do the new comers owe their 
maintenance and employment to the demand of the agriculturists : 
with a year's subsistence in store, they could have settled side by 
side with the former inhabitants, and produced a similar scanty 
stock of food and necessaries. Neyertheless we see of what supreme 
importance to the productiveness of the labour of producers, is tke. 
existence of other producers within reach, employed in a different 
kind of industry. The power of exchanging the products of one 
kind of labour for those of another, is a condition, but for which, 
there would almost always be a smaller quantity of labour altogether. 
When a new market is opened for any product of industry, and a 
greater quantity of the article is consequently produced, the increased 
production is not always obtained at the expense of some other 
product ; it is often a new creation, the result of labour which would 
otherwise have remained unexerted ; or of assistance rendered to 
labour by improvements or by modes of co-operation to which re- 
course would not have been had if an inducement had not been 
offered for raising a larger produce. 

§ 3. From these considerations it appears that a country 
will seldom have a productive agriculture, unless it has a large town 
population, or the only available substitute, a large export trade 
in agricultural produce to supply a population elsewhere. I use 

* Supra, pp. 79-90. 



COMBINATION OF LABOUR 121 

the phrase town population for shortness, to imply a population 
non-agricultural; which will generally be collected in towns or 
large villages, for the sake of combination of labour. The appHca- 
tion of this truth by Mr. Wakefield to the theory of colonization has 
excited much attention, and is doubtless destined to excite much 
more. It is one of those great practical discoveries, which, once 
made, appears so obvious that the merit of making them seems less 
than it is. Mr. Wakefield was the first to point out that the mode of 
planting new settlements, then commonly practised — setting down a 
number of famihes side by side, each on its piece of land, all employing 
themselves in exactly the same manner, — though in favourable 
circumstances it may assure to those famihes a rude abundance of 
mere necessaries, can never be other than unfavourable to great 
production or rapid growth : and his system consists of arrange- 
ments for securing that every colony shall have from the first a 
town population bearing due proportion to its agricultural, and that 
the cultivators of the soil shall not be so widely scattered as to be 
deprived by distance of the benefit of that town population as a 
market for their produce. The principle on which the scheme is 
founded, does not depend on any theory respecting the superior 
productiveness of land held in large^portions, and cultivated by hired . 
labour. Supposing it true that land yields the greatest produce when 
divided into small properties and cultivated by peasant proprietors, 
a town population will be just as necessary to induce those proprietors 
to raise that larger produce : and if they were too far from the 
nearest seat of non- agricultural industry to use it as a market for 
disposing of their surplus, and thereby supplying their other wants, 
neither that surplus nor any equivalent for it would, generally 
speaking, be pioduced. 

It is, above all, the deficiency of town population which hmits 

[1848] the productiveness of the industry of a country like India. 

y The agriculture of India is conducted entirely on the system of small 

holdings. There is, however, a considerable amount of combination 

of labour. The village institutions and customs, which are the real 

framework of Indian society, make provision for joint action in the 

cases in which it is seen to be necessary ; or where they fail to do so, 

the government (when tolerably well administered) steps in, and by 

an outlay from the revenue, executes by combined labour the tanks, 

embankments, and works of irrigation, which are indispensable. 

/ The implements and processes of agriculture are however so wretched, 

I that the produce of the soil, in spite of great natural fertility and a 



122 BOOK I. CHAPTER VIIL § 4 

climate highly favourable to vegetation, is miserably small : and the 
land might be made to yield food in abundance for many more than 
the present number of inhabitants, without departing from the 
system of small holdings. But to this the stimulus is wanting, 
which a large town population, connected with the rural districts ^ 
by easy and unexpensive means of communication, would afiordTl 
That town population, again, does not grow up, because the few 
wants and unaspiring spirit of the cultivators (joined until lately 
with great insecurity of property, from military and fiscal rapacity) 
prevent them from attempting to become consumers of town pro- 
duce. In these circumstances the best chance of an early develop- 
ment of the productive resources of India, consists in the rapid ^ 
growth of its export of agricultural produce (cotton, indigo, sugar, 
coffee, &c.) to the markets of Europe. The producers of these 
articles are consumers of food supplied by their fellow-agriculturists 
in India ; and the market thus opened for surplus food will, if 
accompanied by good government, raise up by degrees more extended 
wants and desires, directed either towards European commodities, 
or towards things which will require for their production in India 
a larger manufacturing population. 

§ 4. Thus far of the separation of employments, a form of the 
combination of labour without which there cannot be the first 
rudiments of industrial civiUzation. But when this separation is 
thoroughly established ; when it has become the general practice 
for each producer to supply many others with one commodity, and 
to be supplied by others with most of the things which he consumes ; 
reasons not less real, though less imperative, invite to a further 
extension of the same principle. It is found that the productive 
power of labour is increased by carrying the separation further and 
further ; by breaking down more and more every process of industry 
into parts, so that each labourer shall confine himself to an ever 
smaller number of simple operations. And thus, in time, arise 
those remarkable cases of what is called the division of labour, with 
which all readers on subjects of this nature are familiar. Adam 
Smith's illustration from pin-making, though so well known, is so 
miuch to the point, that I will venture once more to transcribe it. 
" The business of making a pin is divided into about eighteen distinct 
operations. One man draws out the wire, another straights it, a 
third cuts it, a fourth points it, a fifth grinds it at the top for receiving 
1 [" Now " was omitted before " rapid " in the 3rd ed. (1852).] 



COMBINATION OF LABOUR 123 

the head; to make the head requires two or three distinct operations; 
to put it on, is a peculiar business ; to whiten the pins is another ; it 
is even a trade by itself to put them into the paper. ... I have 
seen a small manufactory where ten men only were employed, and 
where some of them, consequently, performed two or three 
distinct operations. But though they were very poor, and therefore 
but indifferently accommodated with the necessary machinery, 
they could, when they exerted themselves, make among them 
about twelve pounds of pins in a day. There are in a pound up- 
wards of four thousand pins of a middling size. Those ten persons, 
therefore, could make among them upwards of forty-eight thousand 
pins in a day. Each person, therefore, making a tenth part of 
forty-eight thousand pins, might be considered as making four 
thousand eight hundred pins in a day. But if they had all wrought 
separately and independently, and without any of them having 
been educated to this peculiar business, they certainly could not 
each of them have made twenty, perhaps not one pin in a day." 

M. Say furnishes a still stronger example of the effects of division 
of labour — from a not very important branch of industry certainly, 
the manufacture of playing cards. " It is said by those engaged in 
the business, that each card, that is, a piece of pasteboard of the size 
of the hand, before being ready for sale, does not undergo fewer 
than seventy operations, every one of which might be the occupation 
of a distinct class of workmen. And if there are not seventy classes 
of work-people in each card manufactory, it is because the division 
of labour is not carried so far as it might be ; because the same work- 
man is charged with two, three, or four distinct operations. The 
influence of this distribution of employment is immense. I have seen 
a card manufactory where thirty workmen produced daily fifteen 
thousand five hundred cards, being above five hundred cards for 
each labourer ; and it may be presumed that if each of these workmen 
were obliged to perform all the operations himself, even supposing 
him a practised hand, he would not perhaps complete two cards in a 
day : and the thirty workmen, instead of fifteen thousand five hun- 
dred cards, would make only sixty." * 

In watchmaking, as Mr. Babbage observes, " it was stated in 
evidence before a Committee of the House of Commons, that there 

* Say, Cours d'Economie Politique Pratique, vol. i. p. 340. 

It is a remarkable proof of the economy of labour occasioned by this 
minute division of occupations, that an article, the production of which is the 
result of such a multitude of manual operations, can be sold for a trifling 



124 BOOK I. CHAPTER VIII. § 5 

are a hundred and two distinct brandies of tliis art, to each of 
which a boy may be put apprentice ; and that he only learns his 
master's department, and is unable, after his apprenticeship has 
expired, without subsequent instruction, to work at any other branch. 
The watch-finisher, whose business it is to put together the scattered 
parts, is the only one, out of the hundred and two persons, who can 
work in any other department than his own." * 

§ 5. The causes of the increased efficiency given to labour 
by the division of employments are some of them too familiar to 
require specification ; but it is worth while to attempt a complete 
enumeration of them. By Adam Smith they are reduced to three. 
" First, the increase of dexterity in every particular workman ; 
secondly, the saving of the time which is commonly lost in passing 
from one species of work to another ; and lastly, the invention of a 
great number of machines which facihtate and abridge labour, and 
enable one man to do the work of many." 

Of these, the increase of dexterity of the individual workman is 
the most obvious and universal. It does not follow that because a 
thing has been done oftener it will be done better. That depends 
on the intelligence of the workman, and on the degree in which his 
mind works along with his hands. But it will be done more easily. 
The organs themselves acquire greater power : the muscles employed 
grow stronger by frequent exercise, the sinews more pliant, and the 
mental powers more efficient, and less sensible of fatigue. What 
can be done easily has at least a better chance of being done well, 
and is sure to be done more expeditiously. What was at first done 
slowly comes to be done quickly ; what was at first done slowly 
with accuracy is at last done quickly with equal accuracy. 
This is as true of mental operations as of bodily. Even a child, 
after much practice, sums up a column of figures with a rapidity 
which resembles intuition. The act of speaking any language, 
of reading fluently, of playing music at sight, are cases as remarkable 
as they are famihar. Among bodily acts, dancing, gymnastic 
exercises, ease and briUiancy of execution on a musical instrument, 
are examples of the rapidity and facility acquired by repetition. In 
simpler manual operations the efiect is of course stiU sooner pro- 
duced. " The rapidity," Adam Smith observes, " with which some 
of the operations of certain manufactures are performed, exceeds 
what the human hand could, by those who had never seen them, be 
* Economy of Machinery and Manufactures^ 3rd edition, p. 201. 



COMBINATION OF LABOUR 125 

supposed capable of acquiring." * This skill is, naturally, attained 
after shorter practice, in proportion as the division of labour is more 
minute ; and will not be attained in the same degree at all, if the 
workman has a greater variety of operations to execute than allows 
of a sufficiently frequent repetition of each. The advantage is not 
confined to the greater efficiency ultimately attained, but includes 
also the diminished loss of time, and waste of material, in learning 
the art. " A certain quantity of material," says Mr. Babbage,! 
" will in all cases be consumed unprofitably, or spoiled, by every 
person who learns an art ; and as he applies himself to each new 
process, he will waste some of the raw material, or of the partly 
manufactured commodity. But if each man commit this waste 
in acquiring successively every process,^ the quantity of waste will 
be much greater than if each person confine his attention to one 
process." And in general each will be much sooner qualified to 
execute his one process, if he be not distracted while learning it, 
by the necessity of learning others. 

The second advantage enumerated by Adam Smith as arising 
from the division of labour, is one on which I cannot help thinking 
that more stress is laid by him and others than it deserves. To 
do full justice to his opinion, I will quote his own exposition of it. 
" The advantage which is gained by saving the time commonly lost 
in passing from one sort of work to another, is much greater than we 
should at first view be apt to imagine it. It is impossible to pass 
very quickly from one kind of work to another, that is carried on in 
a different place, and with quite different tools. A country weaver, 
who cultivates a small farm, must lose a good deal of time in passing 
from his loom to the field, and from the field to his loom. When the 
two trades can be carried on in the same workhouse, the loss of time 
is no doubt much less. It is even in this case, however, very con- 
siderable. A man commonly saunters a httle in turning his hand 

* " In astronomical observations, the senses of the operator are rendered 
BO acute by habit, that he can estimate differences of time to the tenth of a 
second ; and adjust his measuring instrument to graduations of which five 
thousand occupy only an inch. It is the same throughout the commonest 
processes of manufacture. A child who fastens on the heads of pins will 
repeat an operation requiring several distinct motions of the muscles one 
hundred times a minute for several successive hours. In a recent Manchester 
paper it was stated that a pecuhar sort of twist or ' gimp,' which cost three 
shilUngs making when first introduced, was now manufactured for one penny ; 
and this not, as usually, by the invention of a new machine, but solely through 
the increased dexterity of the workman." — Edinburgh Review for January 
1849, p. 81. 

t Page 171. 



126 BOOK I. CHAPTER VIIL § 5 

from one sort of employment to another. When lie first begins the 
new work, he is seldom very keen and hearty ; his mind, as they say, 
does not go to it, and for some time he rather trifles than appHes 
to good purpose. The habit of saimtering and of indolent careless 
application, which is naturally, or rather necessarily acquired by 
every country workman who is obhged to change his work and his 
tools every half hour, and to apply his hand in twenty different ways 
almost every day of his Hfe, renders him almost always slothful 
and lazy, and incapable of any vigorous apphcation even on the 
most pressing occasions." This is surely a most exaggerated descrip- 
tion of the inefficiency of country labour, where it has any adequate 
motive to exertion. Few workmen change their work and their 
tools oftener than a gardener ; is he usually incapable of vigorous 
apphcation ? Many of the higher description of artisans have to 
perform a great multiphcity of operations with a variety of tools. 
They do not execute each of these with the rapidity with which a 
factory workman performs his single operation ; but they are, 
except in a merely manual sense, more skilful labourers, and in all 
senses whatever more energetic. 

Mr. Babbage, following in the track of Adam Smith, says, 
" When the human hand, or the human head, has been for some time 
occupied in any kind of work, it cannot instantly change its employ- 
ment with full effect. The muscles of the limbs employed have 
acquired a flexibihty during their exertion, and those not in action 
a stiffness during rest, which renders every change slow and unequal 
in the commencement. Long habit also produces in the muscles 
exercised a capacity for enduring fatigue to a much greater degree 
than they could support under other circumstances. A similar 
result seems to take place in any change of mental exertion ; the 
attention bestowed on the new subject not being so perfect at first 
as it becomes after some exercise. The employment of different 
tools in the successive processes is another cause of the loss of time 
in changing from one operation to another. If these tools are 
simple and the change is not frequent, the loss of time is not consider- 
able ; but in many processes of the arts, the tools are of great 
dehcacy, requiring accurate adjustment every time they are used ; 
and in many cases, the time employed in adjusting bears a large 
proportion to that employed in using the tool. The sliding-rest, 
the dividing and the drilling engine are of this kind : and hence, 
in manufactories of sufficient extent, it is found to be good economy 
to keep one machine constantly employed in one kind of work : 



COMBINATION OF LABOUR 127 

one lathe, for example, having a screw motion to its sliding-rest 
along the whole length of its bed, is kept constantly making cylinders ; 
another, having a motion for equalizing the velocity of the work at 
the point at which it passes the tool, is kept for facing surfaces ; 
whilst a third is constantly employed in cutting wheels." y^ 

I am very far from implying that these different considerations 
are of no weight ; but I think there are counter-considerations 
which are overlooked. If one kind of muscular or mental labour 
is different from another, for that very reason it is to some extent 
a rest from that other ; and if the greatest vigour is not at once 
obtained in the second occupation, neither could the first have been 
indefinitely prolonged without some relaxation of energy. It is a 
matter of common experience that a change of occupation will often 
afford relief where complete repose would otherwise be necessary, 
and that a person can work many more hours without fatigue at a 
succession of occupations, than if coufined during the whole time to 
one. Different occupations employ different muscles, of different 
energies of the mind, some of which rest and are refreshed while 
others work. Bodily labour itseK rests from mental, and conversely. 
The variety itself has an invigorating effect on what, for want of a 
more philosophical appellation, we must term the animal spirits ; 
so important to the efficiency of all work not mechanical, and not 
unimportant even to that. The comparative weight due to these 
considerations is different with different individuals ; some are more 
fitted than others for persistency in one occupation, and less fit for 
change ; they require longer to get the steam up (to use a metaphor 
p.ow common) ; the irksomeness of setting to work lasts longer, 
and it requires more time to bring their faculties into full play, and 
therefore when this is once done, they do not like to leave off, but go 
on long without intermission, even to the injury of their health. 
Temperament has something to do with these differences. There are 
people whose faculties seem by nature to come slowly into action, 
and to accomplish little until they have been a long time employed. 
Others, again, get into action rapidly, but cannot, without exhaustion, 
continue long. In this, however, as in most other things, though 
natural differences are something, habit is much more. The habit 
of passing rapidly from one occupation to another may be acquired, 
like other habits, by early cultivation ; and when it is acquired, there 
is none of the sauntering which Adam Smith speaks of, after each 
change ; no want of energy and interest, but the workman comes to 
each part of his occupation with a freshness and a spirit which he -/■ 



128 BOOK I. CHAPTER VIII. § 5 

does not retain if lie persists in any one part (unless in case of 
unusual excitement) beyond tlie length of time to which he is accus- 
tomed. Women are usually (at least in their present social circum- 
stances) of far greater versatihty than men ; and the present topic 
is an instance among multitudes, how little the ideas and experience 
of women have yet counted for, in forming the opinions of mankind. 
There are few women who would not reject the idea that work is 
made vigorous by being protracted, and is inefficient for some time 
after changing to a new thing. Even in this case, habit, I believe, 
much more than nature, is the cause of the difference. The occupa- 
tions of nine out of every ten men are special, those of nine out of 
every ten women general, embracing a multitude of details each of 
which requires very little time. Women are in the constant practice 
of passing quickly from one manual, and still more from one mental 
operation to another, which therefore rarely costs them either effort 
or loss of time, while a man's occupation generally consists in work- 
ing steadily for a long time at one thing, or one very limited class 
of things. But the situations are sometimes reversed, and with 
them the characters. Women are not found less efficient than men 
for the uniformity of factory work, or they would not so generally 
be employed for it ; and a man who has cultivated the habit of 
turning his hand to many things, far from being the slothful and lazy 
person described by Adam Smith, is usually remarkably lively and 
active. It is true, however, that change of occupation may be too 
frequent even for the most versatile. Incessant variety is even more 
fatiguing than perpetual sameness. 

The third advantage attributed by Adam Smith to the division 
of labour, is, to a certain extent, real. Inventions tending to save 
labour in a particular operation, are more likely to occur to any one 
in proportion as his thoughts are intensely directed to that occupa- 
tion, and continually employed upon it. A person is not so likely 
to make practical improvements in one department of things, whose 
attention is very much diverted to others. But, in this, much more 
depends on general intelligence and habitual activity of mind, than 
on exclusiveness of occupation ; and if that exclusiveness is carried 
to a degree unfavourable to the cultivation of intelligence, there will 
be more lost in this kind of advantage, than gained. We may add, 
that whatever may be the cause of making inventions, when they are 
once made, the increased efficiency of labour is owing to the invention 
itself, and not to the division of labour. 

The greatest advantage (next to the dexterity of the workmen) 



COMBINATION OF LABOUR 129 

derived from the minute division of labour wkich. takes place in 
modern manufacturing industry, is one not mentioned by Adam 
Smith, but to which attention has been drawn by Mr. Babbage ; 
the more economical distribution of labour, by classing the work- 
people according to their capacity. Different parts of the same 
series of operations require unequal degrees of skill and bodily 
strength ; and those who have skill enough for the most difficult, 
or strength enough for the hardest parts of the labour, are made 
much more useful by being employed solely in them ; the operations 
which everybody is capable of, being left to those who are fit for no 
others. Production is most efficient when the precise quantity of 
skill and strength, which is required for each part of the process, is 
employed in it, and no more. The operation of pin-making requires, 
it seems, in its different parts, such different degrees of skill, that the 
wages earned by the persons employed vary from fourpence half- 
penny a day to six shillings ; and if the workman who is paid at that 
highest rate had to perform the whole process, he would be working 
a part of his time with a waste per day equivalent to the difference 
between six shillings and fourpence halfpenny. Without reference 
to the loss sustained in quantity of work done, and supposing even 
that he could make a pound of pins in the same time in which ten 
workmen combining their labour can make ten pounds, Mr. Bab- 
bage computes that they would cost, in making, three times and 
three-quarters as much as they now do by means of the division of 
labour. In needle-making, he adds, the difference would be still 
greater, for in that, the scale of remuneration for different parts of 
the process varies from sixpence to twenty shillings a day. 

To the advantage which consists in extracting the greatest 
possible amount of utility from skill, may be added the analogous 
one, of extracting the utmost possible utility from tools. " If any 
man," says an able writer,* " had all the tools which many different 
occupations require, at least three-fourths of them would constantly 
be idle and useless. It were clearly then better, were any society 
to exist where each man had aU these tools, and alternately carried 
on each of these occupations, that the members of it should, if 
possible, divide them amongst them, each restricting himself to 
some particular employment. The advantages of the change to 
the whole community, and therefore to every individual in it, are 

* Statement of some New Principles on the subject of Political Economy, 
by John Rae (Boston, U.S.), p. 164. [Sociological Theory of Capital (1905), 
p. 102. See infra, p. 165 n.] 

V 



130 BOOK I. CHAPTER VIII. § 6 

great. In the first place, the various implements being in constant 
employment, yield a better return for what has been laid out in 
procuring them. In consequence their owners can afiord to have 
them of better quahty and more complete construction. The result 
of both events is, that a larger provision is made for the future wants 
of the whole society." 

§ 6. The division of labour, as all writers on the subject have 
remarked, is limited by the extent of the market. If, by the separa- 
tion of pin-making into ten distinct employments, forty-eight 
thousand pins can be made in a day, this separation will only 
be advisable if the number of accessible consumers is such as tc 
require, every day, something Hke forty-eight thousand pins. If 
there is only a demand for twenty-four thousand, the division of 
labour can only be advantageously carried to the extent which 
will every day produce that smaller number. This, therefore, is 
a further mode in which an accession of demand for a commodity 
tends to increase the efficiency of the labour employed in its pro- 
duction. The extent of the market may be limited by several 
causes : too small a population ; the population too scattered and 
distant to be easily accessible ; deficiency of roads and water carriage ; 
or, finally, the population too poor, that is, their collective labour 
too httle effective, to admit of their being large consumers. In- 
dolence, want of skill, and want of combination of labour, among 
those who would otherwise be buyers of a commodity, Hmit, there- 
fore, the practical amount of combination of labour among its 
producers. In an early stage of civihzation, when the demand 
of any particular locality was necessarily small, industry only 
flourished among those who, by their command of the sea-coast 
or of a navigable river, could have the whole world, or all that 
part of it which lay on coasts or navigable rivers, as a market 
for their productions. The increase of the general riches of the 
world, when accompanied with freedom of commercial intercourse, 
improvements in navigation, and inland communication by roads, 
canals, or railways, tends to give increased productiveness to the 
labour of every nation in particular, by enabhng each locaHty to 
supply with its special products so much larger a market, that a 
great extension of the division of labour in their production is an 
ordinary consequence. 

The division of labour is also Hmited, in many cases, by the 
nature of the employment. Agriculture, for example, is not 



susceptible of so great a division of occupations as many branches 
of manufactures, because its different operations cannot possibly 
be simultaneous. One man cannot be always ploughing, another 
sowing, and another reaping. A workman who only practised one 
agricultural operation would be idle eleven months of the year. 
The same person may perform them all in succession, and have, 
in most cHmates, a considerable amount of unoccupied time. To 
execute a great agricultural improvement, it is often necessary that 
many labourers should work together ; but in general, except the few 
whose business is superintendence, they all work in the same manner. 
A canal or a railway embankment cannot be made without a com- 
bination of many labourers ; but they are all excavators, except 
the engineers and a few clerks.^ 

^ [See Appendix G. Division and Combination of Labour.} 



V 



CHAPTEK IX 

OF PRODUCTION ON A LARGE, AND PRODUCTION ON 
A SMALL SCALE 

§ 1. From tlie importance of combination of labour, it is an 
obvious conclusion, that there are many cases in wMch production 
is made much more elective by being conducted on a large scale. 
Whenever it is essential to the greatest efficiency of labour that 
many labourers should combine, even though only in the way of 
Simple Co-operation, the scale of the enterprise must be such as 
to bring many labourers together, and the capital must be large 
enough to maintain them. Still more needful is this when the 
nature of the employment allows, and the extent of the possible 
market encourages, a considerable division of labour. The larger 
the enterprise, the farther the division of labour may be carried. 
This is one of the principal causes of large manufactories. Even 
when no additional subdivision of the work would follow an enlarge- 
ment of the operations, there will be good economy in enlarging 
them to the point at which every person to whom it is convenient 
to assign a special occupation, will have full employment in that 
occupation. This point is well illustrated by Mr. Babbage.* 

" If machines be kept working through the twenty-four houra 
(which is evidently the only economical mode of employing them,) 
" it is necessary that some person shall attend to admit the workmen 
at the time they reheve each other ; and whether the porter or 
other person so employed admit one person or twenty, his rest 
will be equally disturbed. It will also be necessary occasionally 
to adjust or repair the machine ; and this can be done much better 
by a workman accustomed to machine-making, than by the person 
who uses it. Now, since the good performance and the duration 
of machines depend, to a very great extent, upon correcting every 
shake or imperfection in their parts as soon as they appear, the 

* Page 214 et seqq. 



PRODUCTION ON A LARGE AND ON A SMALL SCALE 133 

prompt attention of a workman resident on the spot will con- 
siderably reduce the expenditure arising from the wear and tear 
of the machinery. But in the case of a single lace-frame, or a single 
loom, this would be tojo expensive a plan. Here then arises another 
circumstance which tends to enlarge the extent of a factory. It 
ought to consist of such a number of machines as shall occupy the 
whole time of one workman in keeping them in order : if extended 
beyond that number, the same principle of economy would point 
out the necessity of doubling or tripling the number of machines, in 
order to employ the whole time of two or three skilful workmen. 

" When one portion of the workman's labour consists in the 
exertion of mere physical force, as in weaving, and in many similar 
arts, it will soon occur to the manufacturer, that if that part were 
executed by a steam-engine, the same man might, in the case of 
weaving, attend to two or more looms at once : and, since we already 
suppose that one or more operative engineers have been employed, 
the number of looms may be so arranged that their time shall be 
fully occupied in keeping the steam-engine and the looms in order. 

' Pursuing the same principles, the manufactory becomes 
gradually so enlarged, that the expense of lighting during the 
night amounts to a considerable sum : and as there are already 
attached to the establishment persons who are up all night, and 
can therefore constantly attend to it, and also engineers to make 
and keep in repair any machinery, the addition of an apparatus 
for making gas to light the factory leads to a new extension, at 
the same time that it contributes, by diminishing the expense 
of lighting, and the risk of accidents from fire, to reduce the cost 
of manufacturing. 

" Long before a factory has reached this extent, it will have 
been found necessary to establish an accountant's department, with 
clerks to pay the workmen, and to see that they arrive at their 
stated times ; and this department must be in communication 
with the agents who purchase the raw produce, and with those 
who sell the manufactured article." It will cost these clerks and 
accountants Uttle more time and trouble to pay a large number of 
workmen than a smaU number ; to check the accounts of large 
transactions, than of smaU. If the business doubled itself, it 
would probably be necessary to increase, but certainly not to 
double, the number either of accountants, or of buying and selling 
agents. Every increase of business would enable the whole to 
be carried on with a proportionately smaller amount of labour. 



134 BOOK I. CHAPTER IX. § 1 

As a general rule, the expenses of a business do not increase 
by any means proportionally to the quantity of business. Let 
us take as an example, a set of operations which we are accustomed 
to see carried on by one great establishment, that of the Post Office. 
Suppose that the business, let us say only of the London letter-post, 
instead of being centralized in a single concern, were divided among 
five or six competing companies. Each of these would be obliged 
to maintain almost as large an establishment as is now sufficient 
for the whole. Since each must arrange for receiving and delivering 
letters in all parts of the town, each must send letter-carriers into 
every street, and almost every alley, and this too as many times 
in the day as is now done by the Post Office, if the service is 
to be as well performed. Each must have an office for receiving 
letters in every neighbourhood, with all subsidiary arrangements for 
collecting the letters from the different offices and re-distributing 
them. To this must be added the much greater number of superior 
officers who would be required to check and control the subordinates, 
implying not only a greater cost in salaries for such responsible 
officers, but the necessity, perhaps, of being satisfied in many 
instances with an inferior standard of quahfication, and so failing 
in the object. 

Whether or not the advantages obtained by operating on a 
large scale preponderate in any particular case over the more 
watchful attention, and greater regard to minor gains and losses, 
usually found in small estabhshments, can be ascertained, in a 
state of free competition, by an unfailing test. Wheriever there 
are large and small establishments in the same business, that one 
of the two which in existing circumstances carries on the production 
at greatest advantage will be able to undersell the other. The 
power of permanently underselHng can only, generally speaking, 
be derived from increased efi'ectiveness of labour ; and this, when 
obtained by a more extended division of employment, or by a 
classification tending to a better economy of skill, always implies a 
greater produce from the same labour, and not merely the same 
produce from less labour : it increases not the surplus only, but 
the gross produce of industry. If an increased quantity of the 
particular article is not required, and part of the labourers in con- 
sequence lose their employment, the capital which maintained 
and employed them is also set at liberty ; and the general produce 
of the country is increased by some other application of their 
labour. 



PRODUCTION ON A LARGE AND ON A SMALL SCALE 135 

Anotlier of the causes of large manufactories, however, is the 
introduction of processes requiring expensive machinery. Expensive 
machinery supposes a large capital ; and is not resorted to except 
with the intention of producing, and the hope of selling, as much 
of the article as comes up to the full powers of the machine. For 
both these reasons, wherever costly machinery is used, the large 
system of production is inevitable. But the power of underselling 
is not in this case so unerring a test as in the former, of the beneficial 
effect on the total production of the community. The power of 
underseUing does not depend on the absolute increase of produce, 
but on its bearing an increased proportion to the expenses ; which, 
as was shown in a former chapter,* it may do, consistently with even 
a diminution of the gross annual produce. By the adoption of 
machinery, a circulating capital, which was perpetually consumed 
and reproduced, has been converted into a fixed capital, requiring 
only a small annual expense to keep it up : and a much smaller 
produce will suffice for merely covering that expense, and replacing 
the remaining circulating capital of the producer. The machinery 
therefore might answer perfectly well to the manufacturer, and 
enable him to undersell his competitors, though the effect on the 
production of the country might be not an increase but a diminution. 
It is true, the article will be sold cheaper, and therefore, of that 
single article, there will probably be not a smaller, but a greater 
quantity sold ; since the loss to the community collectively has 
fallen upon the work-people, and they are not the principal customers, 
if customers at all, of most branches of manufacture. But though 
that particular branch of industry may extend itself, it will be 
by replenishing its diminished circulating capital from that of the 
community generally ; and if the labourers employed in that 
department escape loss of employment, it is because the loss will 
spread itself over the labouring people at large. If any of them 
are reduced to the condition of unproductive labourers, supported 
by voluntary or legal charity, the gross produce of the country 
is to that extent permanently diminished, until the ordinary progress 
of accumulation makes it up ; but if the condition of the labouring 
classes enables them to bear a temporary reduction of wages, and 
the superseded labourers become absorbed in other employments, 
their labour is still productive, and the breach in the gross produce of 
the community is repaired, though not the detriment to the labourers. 
I have restated this exposition, which has already been made in a 

* Supra, chap. vi. 



136 BOOK I. CHAPTER IX. § 1 

former place, to impress more strongly the truth, that a mode of 
production does not of necessity increase the productive effect of 
the collective labour of a community, because it enables a particular 
commodity to be sold cheaper. The one consequence generally 
accompanies the other, but not necessarily. I will not here repeat 
the reasons I formerly gave, nor anticipate those which will be given 
more fully hereafter, for deeming the exception to be rather a 
case abstractedly possible, than one which is frequently realized in 

fact. 

A considerable part of the saving of labour effected by substituting 
the large system of production for the small, is the saving in the 
labour of the capitahsts themselves. If a hundred producers with 
small capitals carry on separately the same business, the super- 
intendence of each concern will probably require the whole attention 
of the person conducting it, sufficiently at least to hinder his time 
or thoughts from being disposable for anything else : while a 
single manufacturer possessing a capital equal to the sum of theirs, 
with ten or a dozen clerks, could conduct the whole of their amount 
of business, and have leisure too for other occupations. The 
small capitahst, it is true, generally combines with the business 
of direction some portion of the details, which the other leaves to 
his subordinates : the small farmer follows his own plough, the 
small tradesman serves in his own shop, the small weaver pUes 
his own loom. But in this very union of functions there is, in 
a great proportion of cases, a want of economy. The principal 
in the concern is either wasting, in the routine of a business, qualities 
suitable for the direction of it, or he is only fit for the former, and 
then the latter will be ill done. I must observe, however, that I 
do not attach, to this saving of labour, the importance often ascribed 
to it. There is undoubtedly much more labour expended in the 
superintendence of many small capitals than in that of one large 
capital. For this labour however the small producers have generally 
a full compensation, in the feehng of being their own masters, and 
not servants of an employer. It may be said, that if they value 
this independence they will submit to pay a price for it, and to 
sell at the reduced rates occasioned by the competition of the 
great dealer or manufacturer. But they cannot always do this 
and continue to gain a hving. They thus gradually disappear from 
society. After having consumed their Httle capital in prolonging 
the unsuccessful struggle, they either sink into the condition of 
hired labourers, or become dependent on others for support. 



PRODUCTION ON A LARGE AND ON A SMALL SCALE 137 

§ 2. Production on a large scale is greatly promoted by the 
practice of forming a large capital by the combination of many small 
contributions ; or, in other words, by the formation of joint stock 
companies. The advantages of the joint stock principle are numerous 
and important. 

In the first place, many undertakings require an amount of 
capital beyond the means of the richest individual or private partner- 
ship. No individual could have made a railway fi'om London to 
Liverpool ; it is doubtful if any individual could even work the 
traffic on it, now when it is made. The government indeed could 
have done both ; and in countries where the practice of co-operation 
is only in the earher stages of its growth, the government can alone 
be looked to for any of the works for which a great combination 
of means is requisite ; because it can obtain those means by com- 
pulsory taxation, and is already accustomed to the conduct of 
large operations. For reasons, however, which are tolerably well 
known, and of which we shall treat fully hereafter, government 
agency for the conduct of industrial operations is generally one of 
the least ehgible of resources, when any other is available. 

Next, there are undertakings which individuals are not abso- 
lutely incapable of performing, but which they cannot perform 
on the scale and with the continuity which are ever more and more 
required by the exigencies of a society in an advancing state. Indi- 
viduals are quite capable of despatching ships from England to 
any or every part of the world, to carry passengers and letters ; 
the thing was done before joint stock companies for the purpose 
were heard of. But when, from the increase of population and 
transactions, as well as of means of payment, the public will no 
longer content themselves with occasional opportunities, but 
require the certainty that packets shall start regularly, for some 
places once or even twice a day, for others once a week, for others 
that a steam ship of great size and expensive construction shall 
depart on fixed days twice in each month, it is evident that to afford 
an assurance of keeping up with punctuaHty such a circle of costly 
operations, requires a much larger capital and a much larger staff 
of qualified subordinates than can be commanded by an individual 
capitaHst. There are other cases, again, in which though the 
business might be perfectly weU transacted with small or moderate 
capitals, the guarantee of a great subscribed stock is necessary 
or desirable as a security to the pubhc for the fulfilment of pecuniary 
engagements. This is especially the case when the nature of the 



138 BOOK I. CHAPTER IX. § 2 

business requires that numbers of persons should be willing to trust 
the concern with their money : as in the business of banking, and 
that of insurance : to both of which the joint stock principle is 
eminently adapted. It is an instance of the folly and jobbery of 
the rulers of mankind, that until a late period the joint stock prin- 
ciple, as a general resort, was in this country interdicted by law 
to these two modes of business ; to banking altogether, and to 
insurance in the department of sea risks ; in order to bestow a 
lucrative monopoly on particular establishments which the govern- 
ment was pleased exceptionally to license, namely the Bank of 
England, and two insurance companies, the London and the Koyal 
Exchange. 

^ Another advantage of joint stock or associated management, is 
its incident of publicity. This is not an invariable, but it is a natural 
consequence of the joint stock principle, and might be, as in some 
important cases it already is, compulsory. In banking; insurance, 
and other businesses which depend wholly on confidence, publicity 
is a still more important element of success than a large subscribed 
capital. A heavy loss occurring in a private bank may be kept secret ; 
even though it were of such magnitude as to cause the ruin of the 
concern, the banker may still carry it on for years, trying to retrieve 
its position, only to fall in the end with a greater crash : but this 
cannot so easily happen in the case of a joint stock company, 
whose accounts are published periodically. The accounts, even if 
cooked, still exercise some check ; and the suspicions of shareholders, 
breaking out at the general meetings, put the public on their guard. 

These are some of the advantages of joint stock over individual 
management. But if we look to the other side of the question, we 
shall find that individual management has also very great advan- 
tages over joint stock. £The chief of these is the much keener interest 
of the managers in the success of the undertaking. 

The administration of a joint stock association is, in the main, 
administration by hired servants. Even the committee, or board 
of directors, who are supposed to superintend the management, 
and who do really appoint and remove the managers, have no 
pecuniary interest in the good working of the concern beyond 
the shares they individually hold, which are always a very small 
part of the capital of the association, and in general but a small 
part of the fortunes of the directors themselves ; and the part 
they take in the management usually divides their time with many 
1 [This paragraph was added in the 6th ed. (1865).] 



PEODUCTION ON A LARGE AND ON A SMALL SCALE 139 

other occupations, of as great or greater importance to their own 
interest ; the business being the principal concern of no one except 
those who are hired to carry it on. But experience shows, and 
proverbs, the expression of popular experience, attest, how inferior 
is the quahty of hired servants, compared with the ministration 
of those personally interested in the work, and how indispensable, 
when hired service must be employed, is " the master's eye " to watch 
over it. 

The successful conduct of an industrial enterprise requires two 
quite distinct quaUfications : fideUty, and zeal. The fidelity of the 
hired managers of a concern it is possible to secure. When their 
work admits of being reduced to a definite set of rules, the violation 
of these is a matter on which conscience cannot easily bhnd itself, 
and on which responsibility may be enforced by the loss of employ- 
ment. But to carry on a great business successfully, requires a 
hundred things which, as they cannot be defined beforehand, it is 
impossible to convert into distinct and positive obligations. First 
and principally, it requires that the directing mind should be inces- 
santly occupied with the subject ; should be continually laying 
schemes by which greater profit may be obtained, or expense saved., 
This intensity of interest in the subject it is seldom to be expected 
that any one should feel, who is conducting a business as the hired 
servant and for the profit of another. There are experiments in 
human affairs which are conclusive on the point. Look at the whole 
class of rulers, and ministers of state. The work they are entrusted 
with, is among the most interesting and exciting of all occupations ;, 
the personal share which they themselves reap of the national bene- 
fits or misfortunes which befal the state under their rule, is far from 
trifling, and the rewards and punishments which they may expect 
from pubHc estimation are of the plain and palpable kind which are 
most keenly felt and most widely appreciated. Yet how rare a thing 
is it to find a statesman in whom mental indolence is not stronger 
than all these inducements. How infinitesimal is the proportion 
who trouble themselves to form, or even to attend to, plans of public 
improvement, unless when it is made still more troublesome to them 
to remain inactive ; or who have any other real desire than that of 
rubbing on, so as to escape general blame. On a smaller scale, 
all who have ever employed hired labour have had ample experience 
of the efforts made to give as Httle labour in exchange for the wages, 
as is compatible with not being turned off. The universal neglect 
by domestic servants of their employer's interests, wherever these are 



140 BOOK I. CHAPTER IX. § 2 

not protected by some fixed rule, is matter of common remark ; 
unless where long continuance in tlie same service, and reciprocal good 
offices, have produced either personal attachment, or some feeling of 
a common interest. 

Another of the disadvantages of joint stock concerns, which is 
in some degree common to all concerns on a large scale, is disregard 
of small gains and small savings. In the management of a great 
capital and great transactions, especially when the managers have 
not much interest in it of their own, small sums are apt to be counted 
for next to nothing ; they never seem worth the care and trouble 
which it costs to attend to them, and the credit of KberaHty and 
openhandedness is cheaply bought by a disregard of such trifling 
considerations. But small profits and small expenses often repeated 
amount to great gains and losses : and of this a large capitaUst is 
often a sufficiently good calculator to be practically aware ; and to 
arrange his business on a system which, if enforced by a sufficiently 
vigilant superintendence, precludes the possibihty of the habitual 
waste otherwise incident to a great business. But the managers of 
a joint stock concern seldom devote themselves sufficiently to the 
work, to enforce unremittingly, even if introduced, through every 
detail of the business, a really economical system. 

From considerations of this nature, Adam Smith was led to 
enunciate as a principle, that joint stock companies could never be 
expected to maintain themselves without an exclusive privilege, 
except in branches of business which, Hke banking, insurance, and 
some others, admit of being, in a considerable degree, reduced to 
fixed rules.(:^lThis, however, is one of those over-statements of a 
true principle, often met with in Adam Smith. In his days there 
were few instances of joint stock companies which had been perman- 
ently successful without a monopoly, except the class of cases which 
he referred to ; but since his time there have been many ; and the 
regular increase both of the spirit of combination and of the ability 
to combine will doubtless produce many more. Adam Smith fixed 
his observation too exclusively on the superior energy and more 
unremitting attention brought to a business in which the whole 
stake and the whole gain belong to the persons conducting it ; and 
he overlooked various countervaiUng considerations which go a 
great way towards neutrahzing even that great point of superiority. 

Of these one of the most important is that which relates to the 
intellectual and active qualifications of the directing head. The 
stimulus of individual interest is some security for exertion, but 



PRODUCTION ON A LARGE AND ON A SMALL SCALE 141 

(exertion is of little avail if the intelligence exerted is of an inferior 
(Order, wliicli it must necessarily be in the majority of concerns 
•carried on by the persons chiefly interested in them. Where the 
(Concern is large, and can afford a remuneration sufficient to attract 
,a class of candidates superior to the common average, it is possible 
to select for the general management, and for all the skilled employ- 
ments of a subordinate kind, persons of a degree of acquirement 
and cultivated intelligence which more than compensates for their 
inferior interest in the result. Their gTeater perspicacity enables 
them, with even a part of their minds, to see probabiUties of advan- 
tage which never occur to the ordinary run of men by the continued 
exertion of the whole of theirs ; and their superior knowledge, 
and habitual rectitude of perception and of judgment, guard them 
against blunders, the fear of which would prevent the others 
from hazarding their interests in any attempt out of the ordinary 
loutine. 

It must be further remarked, that it is not a necessary conse- 
quence of joint stock management, that the persons employed, 
whether in superior or in subordinate offices, should be paid wholly 
by fixed salaries. There are modes of connecting more or less 
intimately the interest of the employes with the pecuniary success 
of the concern. There is a long series of intermediate positions, 
between working wholly on one's own account, and working by the 
day, week, or year for an invariable payment. Even in the case of 
srdinary unskilled labour, there is such a thing as task-work, or 
working by the piece : and the superior efficiency of this is so well 
known, that judicious employers always resort to it when the work 
admits of being put out in definite portions, without the necessity 
of too troublesome a surveillance to guard against inferiority in the 
execution. In the case of the managers of joint stock companies, 
and of the superintending and controlHng officers in many private 
estabhshments, it is a common enough practice to connect their 
pecuniary interest with the interest of their employers, by giving 
them part of their remuneration in the form of a percentage on the 
profits. The personal interest thus given to hired servants is not 
comparable in intensity to that of the owner of the capital ; but it is 
sufficient to be a very material stimulus to zeal and carefulness, and, 
when added to the advantage of superior intelligence, often raises 
the quahty of the service much above that which the generahty 
of masters are capable of rendering to themselves. The ulterior 
extensions of which this principle of remuneration is susceptible. 



142 BOOK I. CHAPTER IX. § 3 

being of great social as well as economical importance, will be more 
particularly adverted to in a subsequent stage of the present inquiry. 
As I have already remarked of large establishments generally, 
when compared with small ones, whenever competition is free its 
results will show whether individual or joint stock agency is best 
adapted to the particular case, since that which is most efficient and 
most economical will always in the end succeed in underselling the 
other. 

§ 3. The possibility of substituting the large system of produc- 
tion for the small, depends, of course, in the first place, on the extent 
of the market. The large system can only be advantageous when a 
large amount of business is to be done : it implies, therefore, either 
a populous and flourishing community, or a great opening for 
exportation. Again, this as well as every other change in the system 
of production is greatly favoured by a progressive condition of 
capital. It is chiefly when the capital of a country is receiving a 
great annual increase, that there is a large amount of capital seeking 
for investment: and a new enterprise is much sooner and more 
easily entered upon by new capital, than by withdrawing capital 
from existing employments. The change is also much facilitated 
by the existence of large capitals in few hands. It is true that the 
same amount of capital can be raised by bringing together many small 
sums. But this (besides that it is not equally well suited to all 
branches of industry) supposes a much greater degree of commercial 
confidence and enterprise difiused through the community, and 
belongs altogether to a more advanced stage of industrial progress. 

In the countries in which there are the largest markets, the 
widest diffusion of commercial confidence and enterprise, the greatest 
annual increase of capital, and the greatest number of large capitals 
owned by individuals, there is a tendency to substitute more and 
more, in one branch of industry after another, large establishments 
for small ones. In England, the chief type of all these character- 
istics, there is a perpetual growth not only of large manufacturing 
establishments, but also, wherever a sufficient number of purchasers 
are assembled, of shops and warehouses for conducting retail 
business on a large scale. These are almost always able to undersell 
the smaller tradesmen, partly, it is understood, by means of division 
of labour, and the economy occasioned by limiting the employment 
of skilled agency to cases where skill is required ; and partly, no 
doubt, by the saving of labour arising from the great scale of the 



PRODUCTION ON A LARGE AND ON A SMALL SCALE 143 

transactions ; as it costs no more time, and not much more exertion 
of mind, to make a large purchase, for example, than a small one, 
and very much less than to make a number of small ones. 

With a view merely to production, and to the greatest efficiency 
of labour, this change is wholly beneficial. In some cases it is 
attended with drawbacks, rather social than economical, the nature 
of which has been already hinted at. But whatever disadvantages 
may be supposed to attend on the change from a small to a large 
system of production, they are not appHcable to the change from a 
large to a still larger. When, in any employment, the regime of 
independent small producers has either never been possible, or has 
been superseded, and the system of many work-people under one 
management has become fully established, from that time any 
further enlargement in the scale of production is generally an 
unqualified benefit. It is obvious, for example, how great an 
economy of labour would be obtained if London were supplied by 
a single gas or water company instead of the existing plurality. 
While there are even as many as two, this implies double estab- 
lishments of all sorts, when one only, with a small increase, could 
probably perform the whole operation equally well ; double sets 
of machinery and works, when the whole of the gas or water 
required could generally be produced by one set only ; even double 
sets of pipes, if the companies did not prevent this needless expense 
by agreeing upon a division of the territory. Were there only one 
estabhshment, it could make lower charges, consistently with obtain- 
ing the rate of profit now realized. But would it do so ? Even if it 
did not, the community in the aggregate would still be a gainer : 
since the shareholders are a part of the community, and they would 
obtain higher profits while the consumers paid only the same. 
It is, however, an error to suppose that the prices are ever perman- 
ently kept down by the competition of these companies. Where 
competitors are so few, they always end by agreeing not to compete. 
They may run a race of cheapness to ruin a new candidate, but as 
soon as he has established his footing they come to terms with him. 
When, therefore, a business of real public importance can only be 
carried on advantageously upon so large a scale as to render the 
liberty of competition almost illusory, it is an unthrifty dispensation 
of the pubHc resources that several costly sets of arrangements 
should be kept up for the purpose of rendering to the community 
this one service. It is much better to treat it at once as a public 
fimction ; and if it be not such as the government itself could 



144 BOOK I. CHAPTER IX. § 4 

beneficially undertake, it should be made over entire to the company 
or association wbicb will perform it on the best terms for the public. 
In the case of railways, for example, no one can desire to see the 
enormous waste of capital and land (not to speak of increased nuis- 
ance) involved in the construction of a second railway to connect the 
same places already united by an existing one ; while the two would 
not do the work better than it could be done by one, and after a 
short time would probably be amalgamated. Only one such line 
ought to be permitted, but the control over that line never ought to 
be parted with by the State, unless on a temporary concession, as 
in France ; and the vested right which Parliament has allowed to be 
acquired by the existing companies, Uke all other proprietary rights 
which are opposed to public utihty, is morally valid only as a claim 
to compensation, 

§ 4. The question between the large and the small systems 
of production as appHed to agriculture — between large and small 
farming, the grande and the 'petite culture — stands, in many respects, 
on different grounds from the general question between great and 
small industrial estabUshments. In its social aspect, and as an 
element in the Distribution of Wealth, this question will occupy us 
hereafter : but even as a question of production, the superiority 
of the large system in agriculture is by no means so clearly estab- 
lished as in manufactures. 

I have already remarked, that the operations of agriculture 
are little susceptible of benefit from the division of labour. There 
is but little separation of employments even on the largest farm. 
The same persons may not in general attend to the live stock, to the 
marketing, and to the cultivation of the soil ; but much beyond that 
primary and simple classification the subdivision is not carried. 
The combination of labour of which agriculture is susceptible, 
is chiefly that which Mr. Wakefield terms Simple Co-operation ; 
several persons helping one another in the same work, at the same 
time and place. But I confess it seems to me that this able writer 
attributes more importance to that kind of co-operation, in reference 
to agriculture properly so called, than it deserves. None of the 
common farming operations require much of it. There is no particu- 
lar advantage in setting a great number of people to work together in 
ploughing or digging or sowing the same field, or even in mowing or 
reaping it unless time presses. A single family can. generally supply 
all the combination of labour necessary for these purposes. And 



PRODUCTION ON A LARGE AND ON A SMALL SCALE 145 

in the works in which an union of many efforts is really needed, 
there is seldom found any impracticability in obtaining it where 
farms are small. 

The waste of productive power by subdivision of the land often 
amounts to a great evil, but this applies chiefly to a subdivision 
so minute, that the cultivators have not enough land to occupy 
their time. Up to that point the same principles which recommend 
large manufactories are applicable to agriculture. For the greatest 
productive efficiency, it is generally desirable (though even this 
proposition must be received with quaHfications) that no family who 
have any land, should have less than they could cultivate, or than 
will fully employ their cattle and tools. These, however, are not 
the dimensions of large farms, but of what are reckoned in England 
very small ones. The large farmer has some advantage in the 
article of buildings. It does not cost so much to house a great 
number of cattle in one building, as to lodge them equally well in 
several buildings. There is also some advantage in implements. 
A small farmer is not so Hkely to possess expensive instruments. 
But the principal agricultural implements, even when of the best 
construction, are not expensive. It may not answer to a small 
farmer to own a threshing machine, for the small quantity of corn 
he has to thresh ; but there is no reason why such a machine should 
not in every neighbourhood be owned in common, or provided 
by some person to whom the others pay a consideration for its use ; 
especially as, when worked by steam, they are so constructed as to 
be moveable.* ^ The large farmer can make some saving in cost of 
carriage. There is nearly as much trouble in carrying a small 
portion of produce to market, as a much greater produce ; in bringing 
home a small, as a much larger quantity of manures, and articles of 
daily consumption. There is also the greater cheapness of buying 
things in large quantities. These various advantages must count 
for something, but it does not seem that they ought to count for 
very much. In England, for some generations, there has been 
little experience of small farms ; but in Ireland the experience 
has been ample, not merely under the worst but under the best 

* [1852] The observations in the text may hereafter require some degree 
of modification from inventions such as the steam plough and the reaping 
machine. The effect, however, of these improvements on the relative advan- 
tages of large and small farms, will not depend on the efficiency of the instru- 
ments, but on their costliness. I see no reason to expect that this will be such 
as to make them inaccessible to small farmers, or combinations of small farmers. 

^ [This reference to steam threshing machines was inserted in the 5th ed. 
(1862) ; and " imtil lately " in the reference to Ireland, infra, p. 149.] 



146 BOOK: I. CHAPTER IX. § 4 

management ; and tlie highest Irish authorities may be cited in 
opposition to the opinion whibh on this subject commonly prevails 
in England. Mr. Blacker, for example, one of the most experienced 
agriculturists and successful improvers in the north of Ireland, whose 
experience was chiefly in the best cultivated, which are also the most 
minutely divided, parts of the country, was of opinion, that tenants 
holding farms not exceeding from five to eight or ten acres could Uve 
comfortably and pay as high a rent as any large farmer whatever. 
'* I am firmly persuaded," (he says,*) " that the small farmer who 
holds his own plough and digs his own ground, if he follows a proper 
rotation of crops, and feeds his cattle in the house, can undersell 
the large farmer, or in other words can pay a rent which the other 
cannot afford ; and in this I am confirmed by the opinion of many 
practical men who have well considered the subject. . . The 
Enghsh farmer of 700 to 800 acres is a kind of man approaching to 
what is known by the name of a gentleman farmer. He must have 
his horse to ride, and his gig, and perhaps an overseer to attend to 
his labourers ; he certainly cannot superintend himself the labour 
going on in a farm of 800 acres." After a few other remarks, he 
adds, " Besides all these drawbacks, which the small farmer knows 
httle about, there is the great expense of carting out the manure 
from the homestead to such a great distance, and again carting 
home the crop. A single horse will consume the produce of more 
land than would feed a small farmer and his wife and two children. 
And what is more than all, the large farmer says to his labourers, go 
to your work ; but when the small farmer has occasion to hire them, 
he says, come ; the intelligent reader will, I dare say, understand 
the difference." 

One of the objections most urged against small farms is, that 
they do not and cannot maintain, proportionally to their extent, 
so great a number of cattle as large farms, and that this occasions 
such a deficiency of manure, that a soil much subdivided must 
always be impoverished. It will be found, however, that sub- 
division only produces this effect when it throws the land into the 
hands of cultivators so poor as not to possess the amount of live 
stock suitable to the size of their farms. A small farm and a badly 
stocked farm are not synonymous. To make the comparison fairly, 
we must suppose the same amount of capital which is possessed 
by the large farmers to be disseminated among the small ones. 

* Prize Essay on The Management of Landed Property in Ireland, by 
William Blacker (1837), p. 23. 



PRODUCTION ON A LARGE AND ON A SMALL SCALE 147 

When this condition, or even any approach to it, exists, and when 
stall feeding is practised (and stall feeding now begins to be con- 
sidered good economy even on large farms), experience, far from 
bearing out the assertion that small farming is unfavourable to the 
multipUcation of cattle, conclusively estabhshes the very reverse. 
The abundance of cattle, and copious use of manure, on the small 
farms of Flanders, are the most striking features in that Flemish 
agriculture which is the admiration of all competent judges, whether 
in England or on the Continent.* 

* *' The number of beasts fed on a farm of which the whole is arable land," 
(says the elaborate and intelligent treatise on Flemish Husbandry, from personal 
observation and the best sources, published in the Library of the Society for the 
Diffusion of Useful Knowledge,) " is surprising to those who are not acquainted 
with the mode in which the food is prepared for the cattle. A beast for every 
three acres of land is a common proportion, and in very small occupations, 
where much spade husbandrj^ is used, the proportion is still greater. After 
comparing the accounts given in a variety of places and situations of the 
average quantity of milk which a cow gives when fed in the stall, the result is, 
that it greatly exceeds that of our best dairy farms, and the quantity of butter 
made from a given quantity of milk is also greater. It appears astonishing 
that the occupier of only ten or twelve acres of light arable land should be able 
to maintain four or five cows, but the fact is notorious in theWaes country." 
(pp. 59, 60.) 

This subject is treated very intelligently in the work of M. Passy, Des 
Systemes de Culture et de leur Influence sur VEconomie Sociale, one of the 
most impartial discussions, as between the two systems, which has yet appeared 
in France. 

" Without doubt it is England that, on an equal surface, feeds the greatest 
number of animals ; Holland and some parts of Lombardy can alone vie with 
her in this respect : but is this a consequence of the mode of cultivation, and 
have not chmate and local situation a share in producing it ? Of this I think 
there can be no doubt. In fact, whatever may have been said, wherever large 
and small cultivation meet in the same place, the latter, though it cannot 
support as many sheep, possesses, all things considered, the greatest quantity 
of manure-producing animals. 

" In Belgium, for example, the two provinces of smallest farms are Antwerp 
and East Flanders, and they possess on an average for every 100 hectares 
(250 acres) of cultivated land, 74 horned cattle and 14 sheep. The two pro- 
vinces where we find the large farms are Namur and Hainaut, and they average, 
for every 100 hectares of cultivated ground, only 30 horned cattle and 45 sheep. 
Reckoning, as is the custom, ten sheep as equal to one head of horned cattle, 
we find in the first case, the equivalent of 76 beasts to maintain the fecundity 
of the soil ; in the latter case less than 35, a difference which must be called 
enormous. (See the statistical documents published by the Minister of the 
Interior.) The abundance of animals, in the parts of Belgium which are most 
subdivided, is nearly as great as in England. Calculating the number in Eng- 
land in proportion only to the cultivated ground, there are for each 100 hectares, 
65 horned cattle and nearly 260 sheep, together equal to 91 of the former, 
being only an excess of 15. It should besides be remembered, that in Belgium 
stall feeding being continued nearly the whole year, hardly any of the manure 
is lost, while in England grazing in the open fields diminishes considerably 
the quantity which can be completely utilized. 



148 BOOK I. CHAPTER IX. § 4 

Tlie disadvantage, when disadvantage there is, of small or rather 
of peasant farming, as compared with capitahst farming, must 
chiefly consist in inferiority of skill and knowledge ; but it is not 
true, as a general fact, that such inferiority exists. Countries 
of small farms and peasant farming, Flanders and Italy, had a good 
agriculture many generations before England, and theirs is still 
[1848], as a whole, probably the best agriculture in the world. The 
empirical skill, which is the efiect of daily and close observation, 

" Again, in the Department of the Nord, the arrondissements which have the 
smallest farms support the greatest quantity of animals. While the arrondisse- 
ments of Lille and Hazebrouck, besides a greater number of horses, maintain 
the equivalent of 52 and 46 head of horned cattle, those of Dunkirk and Avesnes, 
where the farms are larger, produce the equivalent of only 44 and 40 head. 
(See the statistics of France published by the Minister of Commerce. ) 

" A similar examination extended to other portions of France would yield 
similar results. In the immediate neighbourhood of towns, no doubt, the small 
farmers, having no difficulty in purchasing manure, do not maintain animals : 
but, as a general rule, the kind of cultivation which takes most out of the ground 
must be that which is obliged to be most active in renewing its fertility. Assur- 
edly the small farms cannot have numerous flocks of sheep, and this is an 
inconvenience ; but they support more horned cattle than the large farms. 
To do so is a necessity they cannot escape from, in any country where the 
demands of consumers require their existence : if they could not fulfil this 
condition, they must perish. 

" The following are particulars, the exactness of which is fully attested by 
the excellence of the work from which I extract them, the statistics of the 
commune of Vensat (department of Puy de Dome), lately published by Dr. 
Jusseraud, mayor of the commune. They are the more valuable, as they 
throw full light on the nature of the changes which the extension of small 
farming has, in that district, produced in the number and kind of animals 
by whose manure the productiveness of the soil is kept up and increased. The 
commune consists of 1612 hectares, divided into 4600 parcelles, owned by 591 
proprietors, and of this extent 1466 hectares are under cultivation. In 1790, 
seventeen farms occupied two-thirds of the whole, and twenty others the 
remainder. Since then the land has been much divided, and the subdivision 
is now extreme. What has been the effect on the quantity of cattle ? A 
considerable increase. In 1790 there were only about 300 horned cattle, and 
from 1800 to 2000 sheep ; there are now 676 of the former and only 533 of the 
latter. Thus 1300 sheep have been replaced by 376 oxen and cows, and (all 
things taken into account) the quantity of manure has increased in the ratio 
of 490 to 729, or more than 48 per cent, not to mention that the animals being 
now stronger and better fed, yield a much greater contribution than formerly 
to the fertilization of the ground. 

"Such is the testimony of facts on the point. It is not true, then, that 
small farming feeds fewer animals than large ; on the contrary, local circum- 
stances being the same, it feeds a greater number : and this is only what might 
have been presumed ; for, requiring more from the soil, it is obhged to take 
greater pains for keeping up its productiveness. All the other reproaches cast 
upon small farming, when collated one by one with facts justly appreciated, 
will be seen to be no better founded, and to have been made only because the 
countries compared with one another were differently situated in respect to the, 
general causes of agricultural prosperity." (pp. 116-120,) 



PRODUCTION ON A LARGE AND ON A SMALL SCALE 149 

peasant farmers often possess in an eminent degree. Tlie traditional 
knowledge, for example, of the culture of the vine, possessed by the 
peasantry of the countries where the best wines are produced, is 
extraordinary. There is no doubt an absence of science, or at least 
of theory ; and to some extent a deficiency of the spirit of improve- 
ment, so far as relates to the introduction of new processes. There 
is also a want of means to make experiments, which can seldom be 
made with advantage except by rich proprietors or capitaHsts. 
As for those systematic improvements which operate on a large tract 
of country at once (such as great works of draining or irrigation) 
or which for any other reasons do really require large numbers of 
workmen combining their labour, these are not in general to be 
expected from small farmers, or even small proprietors, though 
combination among them for such purposes is by no means unex- 
ampled, and will become more common as their intelligence is more 
developed. 

Against these disadvantages is to be placed, where the tenure of 
land is of the requisite kind, an ardour of industry absolutely 
unexampled in any other condition of agriculture. This is a subject 
on which the testimony of competent witnesses is unanimous. 
The working of the petite culture cannot be fairly judged where the 
small cultivator is merely a tenant, and not even a tenant on fixed 
conditions, but (as imtil lately in Ireland) at a nominal rent greater 
than can be paid, and therefore practically at a varying rent always 
amounting to the utmost that can be paid. To understand the 
subject, it must be studied where the cultivator is the proprietor, 
or at least a metayer with a permanent tenure ; where the labour 
he exerts to increase the produce and value of the land avails wholly, 
or at least partly, to his own benefit and that of his descendants. In 
another division of our subject, we shall discuss at some length 
the important subject of tenures of land, and I defer till then any 
citation of evidence on the marvellous industry of peasant proprietors. 
It may suffice here to appeal to the immense amount of gross pro- 
duce which, even without a permanent tenure, EngHsh labom^ers 
generally obtain from their Httle allotments ; a produce beyond 
comparison greater than a large farmer extracts, or would find 
it his interest to extract, from the same piece of land. 

And this I take to be the true reason why large cultivation is 
generally most advantageous as a mere investment for profit. Land 
occupied by a large farmer is not, in one sense of the word, farmed 
so highly. There is not nearly so much labour expended on it. This 



150 BOOK I. CHAPTER IX. §4 

is not on account of any economy arising from combination of 
labour, but because, by employing less, a greater return is obtained in 
proportion to the outlay. It does not answer to any one to pay 
others for exerting all the labour which the peasant, or even the 
allotment-holder, gladly undergoes when the fruits are to be wholly 
reaped by himself. This labour, however, is not unproductive : it 
all adds to the gross produce. With anything hke equaUty of skill 
and knowledge, the large farmer does not obtain nearly so much 
from the soil as the small proprietor, or the small farmer with 
adequate motives to exertion : but though his returns are less, 
the labour is less in a still greater degree, and as whatever labour 
lie employs must be paid for, it does not suit his purpose to employ 
more. 

But although the gross produce of the land is greatest, cceteris 
parihuSj under small cultivation, and although, therefore, a country 
is able on that system to support a larger aggregate population, it is 
generally assumed by English writers that what is termed the net 
produce, that is, the surplus after feeding the cultivators, must be 
smaller ; that therefore, the population disposable for all other 
purposes, for manufactures, for commerce and navigation, for national 
defence, for the promotion of knowledge, for the Uberal professions, 
for the various functions of government, for the arts and literature, 
all of which are dependent on this surplus for their existence as 
occupations, must be less numerous ; and that the nation, therefore 
(waiving all question as to the condition of the actual cultivators) , 
must be inferior in the principal elements of national power, and 
in many of those of general well-being. This, however, has been 
taken for granted much too readily. Undoubtedly the non-agricul- 
tural population will bear a less ratio to the agricultural, under 
small than under large cultivation. But that it will be less numerous 
absolutely, is by no means a consequence. If the total population, 
agricultural and non-agricultural, is greater, the non-agricultural 
portion may be more numerous in itself, and may yet be a smaller 
proportion of the whole. If the gross produce is larger, the net pro- 
duce may be larger, and yet bear a smaller ratio to the gross produce. 
Yet even Mr. Wakefield sometimes appears to confound these distinct 
ideas. In France it is computed [1848] that two-thirds of the whole 
population are agricultural. In England, at most, one-third. Hence 
Mr. Wakefield infers, that " as in France only three people are 
supported by the labour of two cultivators, while in England the 
labour of two cultivators supports six people, English agriculture is 



PRODUCTION ON A LARGE AKD ON A SMALL SCALE 151 

twice as productive as Frencli agriculture," owing to the superior 
efficiency of large farming through combination of labour. But 
in the first place, the facts themselves are overstated. The labour 
of two persons in England does not quite support six people, for 
there is not a little [1848] food imported from foreign countries, 
and from Ireland. In France, too, the labour of two cultivators 
does much more than supply the food of three persons. It provides 
the three persons, and occasionally foreigners, with flax, hemp, and to 
a certain extent with silk, oils, tobacco, and latterly sugar, which in 
England are wholly obtained from abroad ; nearly all the timber 
used in France is of home growth, nearly all which is used in England 
is imported ; the principal fuel of France is [1848] procured and 
brought to market by persons reckoned among agriculturists, in 
England by persons not so reckoned. I do not take into calculation 
hides and wool, these products being common to both countries, 
nor wine or brandy produced for home consumption, since England 
has a corresponding production of beer and spirits ; but England 
has [1848] no material export of either article, and a great importa- 
tion of the last, while France supphes wines and spirits to the whol^ 
world. I say nothing of fruit, eggs, and such minor articles of 
agricultural produce, in which the export trade of France is [1865] 
enormous. But not to lay undue stress on these abatements, we 
will take the statement as it stands. Suppose that two persons, in 
England, do bond fide produce the food of six, while in France, for 
the same purpose, the labour of four is requisite. Does it follow 
that England must have a larger surplus for the support of a non- 
agricultural population ? No ; but merely that she can devote ' 
two-thirds of her whole produce to the purpose, instead of one- third. 
Suppose the produce to be twice as great, and the one-third will 
amount to as much as' two-thirds. The fact might be, that owing 
to the greater quantity of labour employed on the French system, 
the same land would produce food for twelve persoas which on the 
English system would only produce it for six : and if this were so, 
which would be quite consistent with the conditions of the hypothesis, 
then although the food for twelve was produced by the labour of 
eight, while the six were fed by the labour of only two, there would 
be the same number of hands disposable for other employment in 
the one country as in the other. I am not contending that the 
fact is so. I know that the gross produce per acre in France as a 
whole (though not in its most improved districts) averages much less 
than in England, and that, in proportion to the extent and fertility 



16^ BOOK L CHAPTER IX. § 4 

of the two countries, England has, in the sense we are now speaking 
of, much the largest disposable population. But the disproportion 
certainly is not to be measured by Mr. Wakefield's simple criterion. 
As well might it be said that agricultural labour in the United States, 
where, by a late census (1840), four famihes in every five appeared to 
be engaged in agriculture, must be still more inefiicient than in 
France. 

The inferiority of French cultivation (which, taking the country 
as a whole, must be allowed to be real, though much exaggerated) 
is probably more owing to the lower general average of industrial 
skill and energy in that country, than to any special cause ; and 
even if partly the efiect of minute subdivision, it does not prove 
that small farming is disadvantageous, but only (what is undoubtedly 
the fact) that farms in France are very frequently too small, and, 
what is worse, broken up into an almost incredible number of 
patches or parcelles, most inconveniently dispersed and parted from 
one another. 

As a question, not of gross, but of net produce, the comparative 
merits of the grande and the 'pQtite culture, especially when the small 
farmer is also the proprietor, cannot be looked upon as decided. 
It is a question on which good judges at present differ. The current 
of English opinion is [1848] in favour of large farms : on the Con- 
tinent, the weight of authority seems to be on the other side. 
Professor Rau, of Heidelberg, the author of one of the most 
comprehensive and elaborate of extant treatises on political economy, 
and who has that large acquaintance with facts and authorities on 
his own subject, which generally characterises his countrymen, 
lays it down as a settled truth, that small or moderate-sized farms 
/ield not only a larger gross but a larger net produce : though, he 
adds, it is desirable there should be some great proprietors, to lead 
the way in new improvements.* The most apparently impartial 
and discriminating judgment that I have met with is that of M. 
Passy, who (always speaking with reference to net produce) gives 
his verdict in favour of large farms for grain and forage ; but, for 
the kinds of culture which require much labour and attention, 
places the advantage wholly on the side of small cultivation ; 
including in this description, not only the vine and the oHve, 
where a considerable amount of care and labour must be bestowed 
on each individual plant, but also roots, leguminous plants, and 

* See pp. 352 and 353 of a French translation published at Brussels in 
1839, by M. Fred, de Kemmeter, of Ghent. 



PRODUCTION ON A LARGE AND ON A S^IALL SCALE 153 

those which furnish the materials of manufactures. The small size. 
and consequent multipHcation, of farms, according to all authorities, 
are extremely favourable to the abundance of many minor products 
of agriculture.* 

It is evident that every labourer who extracts from the land 
more than his own food, and that of any family he may have, 
increases the means of supporting a non-agricultural population. 
Even if his surplus is no more than enough to buy clothes, the 
labourers who make the clothes are a non-agricultural population, 
enabled to exist by food which he produces. Every agricultural 
family, therefore, which produces its own necessaries, adds to the 
net produce of agriculture ; and so does every person born on the 
land, who by employing himself on it, adds more to its gross pro- 
duce than the mere food which he eats. It is questionable whether, 
even in the most subdivided districts of Europe which are cultivated 
by the proprietors, the multipUcation of hands on the soil has ap- 
proached, or tends to approach, within a great distance of this limit. 
In France, though the subdivision is confessedly too great, there is 
proof positive that it is far from having reached the point at which 
it would begin to diminish the power of supporting a non-agricultural 
population. This is demonstrated by the great increase of the 
towns ; which have of late [1848] increased in a much greater ratio 
than the population generally,f showing (unless the condition of the 
town labourers is becoming rabidly deteriorated, which there is no 
reason to beUeve) that even by the unfair and inapplicable test of 
proportions, the productiveness of agriculture must be on the increase. 
This, too, concurrently with the amplest evidence that in the more 
improved districts of France, and in some which, until lately, were 
among the unimproved, there is a considerably increased consumption 
of country produce by the country population itself. 

1 Impressed with the conviction that, of all faults which can 
be committed by a scientific writer on pohtical and social subjects, 
exaggeration, and assertion beyond the evidence, most require to be 
guarded against, I Hmited myself in the early editions of this work 

* " In the department of the Nord," says M. Passy, "a farm of 20 hectares 
(50 acres) produces in calves, dairy produce, poultry, and eggs, a value of some- 
times 1000 francs (£40) a year : which, deducting expenses, is an addition to the 
net produce of 15 to 20 francs per hectare." Des Systemes de Culture, p. 114. 

t [1857] During the interval between the census of 1851 and that of 1856, the 
increase of the population of Paris alone exceeded the aggregate increase of all 
France : while nearly all the other large towns likewise showed an increase. 

1 [This and the following paragraph were added in the 5th ed. (1862).] 



154 BOOK I. CHAPTER IX. § 4 

to the foregoing very moderate statements. I little knew how much 
stronger my language might have been without exceeding the truth, 
and how much the actual progress of French agriculture surpassed 
anything which I had at that time sufficient grounds to affirm. 
The investigations of that eminent authority on agricultural statistics, 
M. Leonce de Lavergne, undertaken by desire of the Academy of 
Moral and PoHtical Sciences of the Institute of France, have led to 
the conclusion that since the Kevolution of 1789, the total produce 
of French agriculture has doubled ; profits and wages having both 
increased in about the same, and rent in a still greater ratio. M. 
de Lavergne, whose impartiality is one of his greatest merits, is, 
moreover, so far in this instance from the suspicion of having a case 
to make out, that he is labouring to show, not how much French 
agriculture has accompUshed, but how much still remains for it to 
do. " We have required " (he says) " no less than seventy years to 
bring into cultivation two million hectares " (five milHon English 
acres) " of waste land, to suppress half our fallows, double our 
agricultural products, increase our population by 30 per cent, our 
wages by 100 per cent, our rent by 150 per cent. At this rate we 
shall require three quarters of a century more to arrive at the 
point which England has abeady attained."^* 

After this evidence, we have surely now heard the last of the 
incompatibihty of small properties and small farms with agricultural 
improvement. The only question which remains open is one of 
degree ; the comparative rapidity of agricultural improvement 
under the two systems ; and it is the general opinion of those 
who are equally well acquainted with both, that improvement 
is greatest under a due admixture between them. 

In the present chapter, I do not enter on the question between 
great and small cultivation in any other respect than as a question 
of production, and of the efficiency of labour. We shall return to 
it hereafter as affecting the distribution of the produce, and the 
physical and social well-being of the cultivators themselves ; in 
which aspects it deserves, and requires, a still more particular 
examination.^ 

* Economie Rurale de la France depuis 1789. Par M. Leonce de Lavergne, 
Membre de I'lnstitut et de la Societe Centrale d' Agriculture de France, 2™9 
ed. p. 59. 

^ [See Appendix H. Large and Small Farming.'] 



-/' 



CHAPTER X 

OF THE LAW OF THE INCREASE OF LABOUR 

§ 1. We liave now saccessively considered each of the agents 
or conditions of production, and of the means by which the efficacy 
of these various agents is promoted. In order to come to an end 
of the questions which relate exclusively to production, one more, 
of primary importance, remains. 

Production is not a fixed, but an increasing thing. When 
not kept back by bad institutions, or a low state of the arts of 
Hf e, the produce of industry has usually tended to increase ; stimu- 
lated not only by the desire of the producers to augment their 
means of consumption, but by the increasing number of the con- 
sumers. Nothing in poHtical economy can be of more importance 
than to ascertain the law of this increase of production; the con- 
ditions to which it is subject : whether it has practically any Hmits, 
and what these are. There is also no subject in political economy 
which is popularly less understood, or on which the errors committed 
are of a character to produce, and do produce, greater mischief. 

We have seen that the essential requisites of production are 
three — labour, capital, and natural agents ; the term capital 
including all external and physical requisites which are products 
of labour, the term natural agents all those which are not. But 
among natural agents we need not take into account those which, 
existing in unHmited quantity, being incapable of appropriation, 
and never altering in their qualities, are always ready to lend an 
equal degree of assistance to production, whatever may be its 
extent ; as air, and the hght of the sun. Being now about to con- 
sider the impediments to production, not the facihties for it, we 
need advert to no other natural agents than those which are liable 
to be deficient either in quantity or in productive power. These 
may be all represented by the term land. Land, in the narrowest 
acceptation, as the source of agricultural produce, is the chief 



156 BOOK I. CHAPTER XL § 2 

of them ; and if we extend the term to mines and fisheries — to 
what is found in the earth itself, or in the waters which partly 
cover it, as well as to what is grown or fed on its surface, it 
embraces everything with which we need at present concern 
ourselves. 

We may say, then, without a greater stretch of language than 
under the necessary explanation is permissible, that the requisites 
of production are Labour, Capital, and Land. The increase of 
production, therefore, depends on the properties of these elements. 
It is a result of the increase either of the elements themselves, or of 
their productiveness. The law of the increase of production must 
be a consequence of the laws of these elements ; the Hmits to the 
increase of production must be the Umits, whatever they are, 
set by those laws. We proceed to consider the three elements 
successively, with reference to this effect ; or in other words, the 
law of the increase of production, viewed in respect of its dependence, 
first on LabouXj secondly on Capital, and lastly on Land. 

§ 2. The increase of labour is the increase of mankind ; of 
population. On this subject the discussions excited by the Essay 
of Mr. Malthus have made the truth, though by no means universally 
admitted, yet so fully known, that a briefer examination of the 
question than would otherwise have been necessary will probably 
on the present occasion suffice. 

The power of multipHcation inherent in all organic life may 
be regarded as infinite. There is no one species of vegetable or 
animal, which, if the earth were entirely abandoned to it, and 
to the things on which it feeds,, would not in a small number of 
years overspread every region of the globe, of which the climate 
was compatible with its existence. The degree of possible rapidity is 
different in different orders of beings ; but in all it is sufficient, 
for the earth to be very speedily filled up. There are many species 
of vegetables of which a single plant will produce in one year the 
germs of a thousand ; if only two come to maturity, in fourteen 
years the two will have multiplied to sixteen thousand and more. 
It is but a moderate case of fecundity in animals to be capable of 
quadrupling their numbers in a single year ; if they only do as much 
in half a century, ten thousand will have swelled within two centuries 
to upwards of two milHons and a half. The capacity of increase 
is necessarily in a geometrical progression : the numerical ratio 
alone is different. 



LAW OF THE INCREASE OF LABOUR 157 

To this property of organized beings, tlie human species forms 
no exception. Its power of increase is indefinite, and the actual 
multiplication would be extraordinarily rapid, if the power were 
exercised to the utmost. It never is exercised to the utmost, and 
yet, in the most favourable circumstances known to exist, which 
are those of a fertile region colonized from an industrious and 
civiHzed community, population has continued, for several genera- 
tions, independently of fresh immigration, to double itself in not 
much more than twenty years.* That the capacity of multipKcation 
in the human species exceeds even this, is evident if we consider how 
great is the ordinary number of children to a family, where the 
climate is good and early marriages usual ; and how small a pro- 
portion of them die before the age of maturity, in the present state 
of hygienic knowledge, where the locahty is healthy, and the family 
adequately provided with the means of living. It is a very low 
estimate of the capacity of increase, if we only assume, that in a 
good sanitary condition of the people, each generation may be 
double the number of the generation which preceded it. 

Twenty or thirty years ago, these propositions might stiU have 
required considerable enforcement and illustration ; but the evidence 
of them is so ample and incontestable, that they have made their 
way against all kinds of opposition, and may now be regarded as 
axiomatic : though the extreme reluctance felt to admitting them 
every now and then gives birth to some ephemeral theory, speedily 
forgotten, of a difierent law of increase in different circumstances, 
through a providential adaptation of the fecundity of the human 
species to the exigencies of society. t The obstacle to a just under- 

* [1865] TMs has been disputed ; but tbe highest estimate I have seen of 
the term which population requires for doubling itseK in the United States, 
independently of immigrants and of their progeny — that of Mr. Carey — does 
not exceed thirty years. 

f [1852] One of these theories, that of Mr.Doubleday, may be thought to 
require a passing notice, because it has of late obtained some followers, and 
because it derives a semblance of support from the general analogies of organic 
life. This theory maintains that the fecundity of the human animal, and of 
all other living beings, is in inverse proportion to the quantity of nutriment : 
that an underfed population multiplies rapidly, but that all classes in comfort- 
able circumstances are, by a physiological law, so unproHfic, as seldom to keep 
up their numbers without being recruited from a poorer class. There is no 
doubt that a positive excess of nutriment, in animals as well as in fruit trees, 
is unfavourable to reproduction ; and it is quite possible, though by no means 
proved, that the physiological conditions of fecundity may exist in the greatest 
degree when the supply of food is somewhat stinted. But any one who might 
be inclined to draw from this, even if admitted, conclusions at variance with 
the principles of Mr. Malthus, needs only be invited to look through a volume 
of the Peerage, and observe the enormous families, almost universal in that 



158 BOOK I. CHAPTER X. § 3 

standing of the subject does not arise from these theories, but from 
too confused a notion of the causes which, at most times and places, 
keep the actual increase of mankind so far behind the capacity. 

§ 3. Those causes, nevertheless, are in no way mysterious. 
What prevents the population of hares and rabbits from over- 
stocking the earth ? Not want of fecundity, but causes very 
different : many enemies, and insufficient subsistence ; not enough 
to eat, and liability to be eaten. In the human race, which is not 
generally subject to the latter inconvenience, the equivalents for 
it are war and disease. If the multiplication of mankind proceeded 
only like that of the other animals, from a blind instinct, 
it would be limited in the same manner with theirs ; the births 
would be as numerous as the physical constitution of the species 
admitted of, and the population would be kept down by deaths.* 
But the conduct of human creatures is more or less influenced by 
foresight of consequences, and by impulses superior to mere animal 
instincts : and they do not, therefore, propagate like swine, but 

class ; or call to mind the large families of the English clergy, and generally of 
the middle classes of England. 

[1865] It is, besides, well remarked by Mr. Carey, that, to be consistent 
with Mr. Doubleday's theory, the increase of the population of the United 
States, apart from immigration, ought to be one of the slowest on record. 

[1865] Mr. Carey has a theory of his own, also grounded on a physiological 
truth, that the total sum of nutriment received by an organized body directs 
itself in largest proportion to the parts of the system which are most used ; 
from which he anticipates a diminution in the fecundity of human beings, not 
through more abundant feeding, but through the greater use of their brains 
incident to an advanced civilization. There is considerable plausibility in this 
speculation, and experience may hereafter confirm it. But the change in the 
human constitution which it supposes, if ever realized, will conduce to the 
expected effect rather by rendering physical self-restraint easier, than by dis- 
pensing with its necessity ; since the most rapid known rate of multipUcation 
is quite compatible with a very sparing employment of the multiplying power. 

* [1865] Mr. Carey expatiates on the absurdity of supposing that matter 
tends to assume the highest form of organization, the human, at a more rapid 
rate than it assumes the lower forms, which compose human food ; that human 
beings multiply faster than turnips and cabbages. But the limit to the increase 
of mankind, according to the doctrine of Mr. Malthus, does not depend on the 
power of increase of turnips and cabbages, but on the hmited quantity of the 
land on which they can be grown. So long as the quantity of land is practically 
unlimited, which it is in the United States, and food, consequently, can be 
increased at the highest rate which is natural to it, mankind also may, without 
augmented difficulty in obtaining subsistence, increase at their highest rate. 
When Mr. Carey can show, not that turnips and cabbages, but that the soil 
itself, or the nutritive elements contained in it, tend naturally to multiply, and 
that too at a rate exceeding the most rapid possible increase of mankind, he 
will have said something to the purpose. Till then, this part at least of his 
argument may be considered as non-existent. 



LAW OF THE INCREASE OF LABOUR 169 

are capable, though in very unequal degrees, of being withheld by 
prudence, or by the social affections, from giving existence to beings 
born only to misery and premature death. In proportion as man- 
kind rise above the condition of the beasts, population is restrained ' 
by the fear of want rather than by want itself. Even where there 
is no question of starvation, many are similarly acted upon by the 
apprehension of losing what have come to be regarded as the 
decencies of their situation in hfe. Hitherto no other motives than 
these two have been found strong enough, in the generahty of 
mankind, to counteract the tendency to increase. It has been the 
practice of a great majority of the middle and the poorer classes, 
whenever free from external control, to marry as early, and in 
most countries to have as many children, as was consistent with 
maintaining themselves in the condition of life which they were 
born to, or were accustomed to consider as theirs. Among the 
middle classes, in many individual instances, there is an additional 
restraint exercised from the desire of doing more than maintaining 
their circumstances — of improving them ; but such a desire is 
rarely found, or rarely has that effect, in the labouring classes. If 
they can bring up a family as they were themselves brought up, 
even the prudent among them are usually satisfied. Too often 
they do not think even of that, but rely on fortune, or on the 
resources to be found in legal or voluntary charity. 

In a very backward state of society, like that of Europe in the JL- 
Middle Ages, and many parts of Asia at present [1848], population 
is kept down by actual starvation. The starvation does not take 
place in ordinary years, but in seasons of scarcity, which in those 
states of society are much more frequent and more extreme than 
Europe is now accustomed to. In these seasons actual want, or the 
maladies consequent on it, carry off numbers of the population, 
which in a succession of favourable years again expands, to be again 
cruelly decimated. In a more improved state, few, even among 
the poorest of the people, are limited to actual necessaries, and to a 
bare sufficiency of those : and the increase is kept within bounds, 
not by excess of deaths, but by limitation of births. The Umitation 
is brought about in various ways. In some countries, it is the 
result of prudent or conscientious self-restraint. There is a con- 
dition to which the labouring people are habituated ; they perceive 
that by having too numerous famihes, they must sink below that 
condition, or fail to transmit it to their children ; and this they 
do not choose to submit to. The countries in which, so far as is 



160 BOOK I. CHAPTER X. § 3 

known, a great degree of voluntary prudence has been longest 
practised on this subject, are [1848] Norway and parts of Switzerland. 
Concerning both, there happens to be unusually authentic informa- 
tion ; many facts were carefully brought together by Mr. Malthus, 
and much additional evidence has been obtained since his time. 
In both these countries the increase of population is very slow ; 
and what checks it, is not multitude of deaths, but fewness of births. 
Both the births and the deaths are remarkably few in proportion 
to the population ; the average duration of hfe is the longest in 
Europe ; the population contains fewer children, and a greater 
proportional number of persons in the vigour of hfe, than is known 
to be the case in any other part of the world. The paucity of births 
tends directly to prolong Hfe, by keeping the people in comfortable 
circumstances ; and the same prudence is doubtless exercised in 
avoiding causes of disease, as in keeping clear of the principal cause 
of poverty. It is worthy of remark that the two countries thus 
honourably distinguished are countries of small landed proprietors, 'n 

There are other cases in which the prudence and forethought, 
which perhaps might not be exercised by the people themselves, 
are exercised by the state for their benefit ; marriage not being 
permitted until the contracting parties can show that they have 
the prospect of a comfortable support. Under these laws, of which 
I shall speak more fully hereafter, the condition of the people is 
reported to be good, and the illegitimate births not so numerous 
as might be expected. There are places, again, in which the re- 
straining cause seems to be not so much individual prudence, as 
some general and perhaps even accidental habit of the country. 
In the rural districts of England, during the last century, the growth 
of population was very effectually repressed by the difficulty of 
obtaining a cottage to Uve in. It was the custom for unmarried 
labourers to lodge and board with their employers ; it was the 
custom for married labourers to have a cottage : and the rule of 
the English poor laws by which a parish was charged with the 
support of its unemployed poor, rendered landowners averse to 
promote marriage. About the end of the century, the great demand 
for men in war and manufactures made it be thought a patriotic 
thing to encourage population : and about the same time the 
growing incHnation of farmers to hve Hke rich people, favoured 
as it was by a long period of high prices, made them desirous of 
keeping inferiors at a greater distance, and, pecuniary motives arising 
from abuses of the poor laws being superadded, they gradually 



LAW OF THE INCREASE OF LABOUR 161 

drove their labourers into cottages, which the landlords now no longer 
refused permission to build. In some countries an old standing 
custom that a girl should not marry until she had spun and woven 
for herself an ample trousseau (destined for the supply of her whole 
subsequent life), is said to have acted as a substantial check to 
population. In England, at present [1848], the influence of pru- 
dence in keeping down multiplication is seen by the diminished 
number of marriages in the manufacturing districts in years when 
trade is bad. 

But whatever be the causes by which population is anywhere 
limited to a comparatively slow rate of increase, an acceleration 
of the rate very speedily follows any diminution of the motives to 
restraint.! It is but rarely that improvements in the condition of 
the labouring classes do anything more than give a temporary 
margin, speedily filled up by an increase of their numbers. The use 
they commonly choose to make of any advantageous change in their 
circumstances, is to take it out in the form which, by augmenting 
the population, deprives the succeeding generation of the benefit. 
Unless, either by their general improvement in intellectual and 
moral culture, or at least by raising their habitual standard of 
comfortable living, they can be taught to make a better use o4 
favourable circumstances, nothing permanent can be done for them ; 
the most promising schemes end only in having a more numerous, 
but not a happier people. By their habitual standard, I mean that 
(when any such there is) dovm to which they will multiply, but not 
lower. Every advance they make in education, civiHzation, and 
social improvement, tends to raise this standard ; and there is no 
doubt that it is gradually, though slowly, rising in the" more advanced 
countries of Western Europe. Subsistence and employment in 
England have never increased more rapidly than in the last forty 
years [1862], but every census since 1821 showed a smaller propor- 
tional increase of population than that of the period preceding ; 
and the produce of French agriculture and industry is increasing 
in a progressive ratio, while the population exhibits, in every 
quinquennial census, a smaller proportion of births to the population. 

The subject, however, of population, in its connexion with the 
condition of the labouring classes, will be considered in another 
place : in the present we have to do with it solely as one of the 

1 [So from the 3rd ed. (1852). The original second clause of the sentence 
ran : " There is always an immense residuary power behind, ready to start into 
activity as soon as the pressure which restrained it is taken off."] 



162 BOOK I. CHAPTER X. § 3 

elements of Production : and in that character we could not dispense 
with pointing out the unlimited extent of its natural powers of 
increase, and the causes owing to which so small a portion of that 
unHmited power is for the most part actually exercised. After this 
brief indication, we shall proceed to the other elements.^ 

1 [See Appendix I. Population^] 



^ 



CHAPTER XI 

OP THE LAW OF THE INCREASE OP CAPITAL 

§ 1. The requisites of production being labour, capital, and( 
land, it has been seen from the preceding chapter that the impedi* I 
ments to the increase of production do not arise from the first of 
these elements. On the side of labour there is no obstacle to an ' 
increase of production, indefinite in extent and of unslackening 
rapidity. Population has the power of increasing in an uniform and 
rapid geometrical ratio. If the only essential condition of produc- 
tion were labour, the produce might, and naturally would, increase in 
the same ratio ; and there would be no Umit, until the numbers of 
mankind were brought to a stand from actual want of space. 

But production has other requisites, and of these, the one which 
we shall next consider is Capital. There cannot be more people in| 
any country, or in the world, than can be supported from the produce 
of past labour until that of present labour comes in. There will be 
no greater number of productive labourers in any country, or in the 
world, than can be supported from that portion of the produce of 
past labour which is spared from the enjoyments of its possessor for 
purposes of reproduction, and is termed Capital. We have next, 
therefore, to inquire ijito the conditions of the increase of capital : 
the causes by which z;he rapidity of its increase is determined, and 
the necessary limitations of that increase. 

Since all capital is the product of saving, that is, of abstinence J^ 
from present consumption for the sake of a future good, the increase 
of capital must depend upon two things — the amount of the fund ' 
from which saving can be made, and the strength of the dispositions I 
which prompt to it. ] 

The fund from which saving can be made, is the surplus of the 
produce of labour, after supplying the necessaries of Hfe to all 
concerned in the production : including those employed in replacing 
the materials, and keeping the fixed capital in repair. More than 



164 BOOK I. CHAPTER XL § 1 

this surplus cannot be saved under any circumstances. As mucli 
as this, though it never is saved, always might be. This surplus is 
the fund from which the enjoyments, as distinguished from the 
necessaries, of the producers are provided ; it is the fund from which 
all are subsisted, who are not themselves engaged in production ; 
and from which all additions are made to capital. It is the real net 
produce of the country. The phrase, net produce, is often taken in 
a more limited sense, to denote only the profits of the capitalist and 
the rent of the landlord, under the idea that nothing can be included 
in the net produce of capital, but what is returned to the owner of 
the capital after replacing his expenses. But this is too narrow an 
acceptation of the term. The capital of the employer forms the 
revenue of the labourers, and if this exceeds the necessaries of life, 
it gives them a surplus which they may either expend in enjoyments, 
or save. For every purpose for which there can be occasion to 
speak of the net produce of industry, this surplus ought to be in- 
cluded in it. When this is included, and not otherwise, the net 
produce of the country is the measure of its efiective power ; of 
what it can spare for any purposes of public utiHty, or private 
indulgence ; the portion of its produce of which it can dispose at 
pleasure ; which can be drawn upon to attain any ends, or gratify 
any wishes, either of the government or of individuals ; which it can 
either spend for its satisfaction, or save for future advantage. 

The amount of this fund, this net produce, this excess of produc- 
tion above the physical necessaries of the producers, is one of the 
elements that determine the amount of saving. The greater the 
produce of labour after supporting the labourers, the more there is 
which can be saved. The same thing also partly contributes to 
determine how much will be saved. A part of the motive to saving 
consists in the prospect of deriving an income from savings ; in 
the fact that capital, employed in production, is capable of not only 
reproducing itself but yielding an increase. The greater the profit 
that can be made from capital, the stronger is the motive to its 
accumulation. That indeed which forms the inducement to save, 
is not the whole of the fund which suppHes the means of saving, 
not the whole net produce of the land, capital, and labour of the coun- 
try, but only a part of it, the part which forms the remuneration 
of the capitalist, and is called profit of stock. It will however be 
readily enough understood, even previously to the explanations 
which will be given hereafter, that when the general productiveness 
of labour and capital is great, the returns to the capitalist are likely 



LAW OF THE INCREASE OF CAPITAL 165 

to be large, and that some proportion, though not an uniform one, 
will commonly obtain between the two. 

§ 2. But the disposition to save does not wholly depend on 
the external inducement to it ; on the amount of profit to be made 
from savings. With the same pecuniary inducement, the inclina- 
tion is very different, in different persons, and in different commu- 
nities. The effective desire of accumulation is of imequal strength , 
net only according to the varieties of individual character, but to the 
general state of society and civilization. Like all other moral 
attributes, it is one in which the human race exhibits great differ- 
ences, conformably to the diversity of its circumstances and the 
stage of its progress. 

On topics which if they were to be fully investigated would exceed 
the bounds that can be allotted to them in this treatise, it is satis- 
factory to be able to refer to other works in which the necessary 
developments have been presented more at length. On the subject 
of Population this valuable service has been rendered by the cele- 
brated Essay of Mr. Malthus ; and on the point which now occupies 
us I can refer with equal confidence to another, though a less known 
work, New Principles of Political Economy, by Dr. Rae.* In no 
other book known to me is so much light thrown, both from 
principle and history, on the causes which determine the accumula- 
tion of capital. 

All accumulation involves the sacrifice of a present, for the sake 
of a future good. But the expediency of such a sacrifice varies 

* This treatise is an example, such as not unfrequently presents itself, 
how much more depends on accident, than on the qualities of a book, in deter- 
mining its reception. Had it appeared at a suitable time, and been favoured 
by circumstances, it would have had every requisite for great success. The 
author, a Scotchman settled in the United States, unites much knowledge, an 
original vein of thought, a considerable turn for philosophic generalities, and a 
manner of exposition and illustration calculated to make ideas tell not only 
for what they are worth, but for more than they are worth, and which some- 
times, I think, has that effect in the writer's own mind. The principal fault of 
the book is the position of antagonism in which, with the controversial spirit 
apt to be found in those who have new thoughts on old subjects, he has placed 
himself towards Adam Smith. I call this a fault, (though I think many of the 
criticisms just, and some of them far-seeing,) because there is much less real 
difference of opinion than might be supposed from Dr. Rae's animadversions ; 
and because what he has found vulnerable in his great predecessor is chiefly 
the " human too much " in his premises ; the portion of them that is over and 
above what was either required or is actually used for the establishment of his 
conclusions. [A re-arranged reprint of John Rae's New Principles of Political 
Economy (1834) has been edited by Professor Mixter, and pubhshed (1905) 
under the title The Sociological Theory of Capital.] 



166 BOOK I. CHAPTER XI. § 2 

very much in different states of circumstances ; and the wiUingness 
to make it varies still more. 

In weighing the future against the present, the uncertainty 
of all things futuie is a leading element ; and that uncertainty is of 
very different degrees. " All circumstances " therefore, " increasing 
the probabihty of the provision we make for futurity being enjoyed by 
ourselves or others, tend " justly and reasonably " to give strength 
to the effective desire of accumulation. Thus a healthy cHmate or 
occupation, by increasing the probability of Hfe, has a tendency to 
add to this desire. When engaged in safe occupations, and Uving in 
healthy countries, men are much more apt to be frugal, than in 
unhealthy or hazardous occupations, and in climates pernicious to 
human life. Sailors and soldiers are prodigals. In the West Indies, 
New Orleans, the East Indies, the expenditure of the inhabitants is 
profuse. The same people, coming to reside in the healthy parts of 
Europe, and not getting into the vortex of extravagant fashion, 
live economically. War and pestilence have always waste and 
luxury among the other evils that follow in their train. For similar 
reasons, whatever gives security to the affairs of the community 
is favourable to the strength of this principle. In this respect the 
general prevalence of law and order, and the prospect of the con- 
tinuance of peace and tranquiUity, have considerable influence."* 
The more perfect the security, the greater will be the effective 
strength of the desire of accumulation. Where property is less safe, 
or the vicissitudes ruinous to fortunes are more frequent and severe, 
fewer persons will save at all, and of those who do, many will require 
the inducement of a higher rate of profit on capital, to make them 
prefer a doubtful future to the temptation of present enjoyment. 

These are considerations which affect the expediency, in the eye 
of reason, of consulting future interests at the expense of present. 
But the incUnation to make the sacrifice does not solely depend upon 
its expediency. The disposition to save is often far short of what 
reason would dictate : and at other times is Hable to be in excess 
of it. 

Deficient strength of the desire of accumulation may arise from 
improvidence, or from want of interest in others. Improvidence 
may be connected with intellectual as well as moral causes. Indiyi^- 
duals and communities of a very low state of intelligence are always 
improvident. A certain measure • of intellectual development 
seems necessary to enable absent things, and especially things future, 
* Rae, p. 123 [ed. Mixter, p. 57]. 



LAW OF THE INCREASE OF CAPITAL 167 

to act ■with any force on the imagination and will. The eSect of 
want of interest in others in diminishing accumulation will be ad- 
mitted, if we consider how much saving at present takes place, 
which has for its object the interest of others rather than of ourselves ; 
the education of children, their advancement in Hfe, the future 
interests of other personal connexions, the power of promoting, 
by the bestowal of money or time, objects of pubUc or private 
usefulness. If mankind were generally in the state of mind to which 
some approach was seen in the decHning period of the Roman Empire 
— caring nothing for their heirs, as well as nothing for friends, the 
public, or any object which survived them — they would seldom 
deny themselves any indulgence for the sake of saving, beyond what 
was necessary for their own future years ; which they would place 
in Ufe annuities, or in some other form which would make its 
existence and their lives terminate together. 

§ 3. From these various causes, intellectual and moral, there is, 
in different portions of the human race, a greater diversity than is 
usually adverted to, in the strength of the effective desire of accumu- 
lation. A backward state of general civilization is often more the 
effect oi deficiency in this particular, than in many others which 
attract more attention. In the circumstances, for example, of a 
hunting tribe, " man may be said to be necessarily improvident, 
and regardless of futurity, because, in this state, the future presents 
nothing which can be with certainty either foreseen or governed. .... 
Besides a want of the motives exciting to provide for the needs 
of futurity through means of the abilities of the present, there is a 
want of the habits of perception and action, leading to a constant 
connexion in the mind of those distant points, and of the series 
of events serving to imite them. Even, therefore, if motives be 
awakened capable of producing the exertion necessary to effect this 
connexion, there remains the task of training the mind to think and 
act so as to estabhsh it." 

For instance : " Upon the banks of the St. Lawrence there are 
several Httle Indian villages. They are surrounded in general by a 
good deal of land, from which the wood seems to have been long 
extirpated, and have, besides, attached to them, extensive tracts 
of forest. The cleared land is rarely, I may almost say never, 
cultivated, nor are any inroads made in the forest for such a purpose. 
The soil is, nevertheless, fertile, and were it not, manure hes in heaps 
by their houses. Were every family to enclose half an acre of ground, 



168 BOOK I. CHAPTER XL § 3 

till it, and plant it in potatoes and maize, it would yield a sufficiency 
to support them one lialf the year. They suffer^ too, every now and 
then, extreme want, insomuch that, joined to occasional intem- 
perance, it is rapidly reducing their numbers. This, to us, so strange 
apathy proceeds not, in any great degree, from repugnance to labour ; 
on the contrary, they apply very dihgently to it when its reward 
is immediate. • Thus, besides their peculiar occupations of hunting 
and fishing, in which they are ever ready to engage, they are much 
employed in the navigation of the St. Lawrence, and may be seen 
labouring at the oar, or setting with the pole, in the large boats used 
for the purpose, and always furnish the greater part of the additional 
hands necessary to conduct rafts through some of the rapids. Nor 
is the obstacle aversion to agricultural labour. This is no doubt 
a prejudice of theirs ; but mere prejudices always yield, principles 
of action cannot be created. When the returns from agricultural 
labour are speedy and great, they are also agriculturists. Thus, 
some of the little islands on Lake St. Francis, near the Indian village 
of St. Kegis, are favourable to the growth of maize, a plant yielding 
a return of a hundredfold, and forming, even when half ripe, a 
pleasant and substantial repast. Patches of the best land on these 
islands are therefore every year cultivated by them for this purpose. 
As their, situation renders them inaccessible to cattle, no fence is 
required ; were this additional outlay necessary, I suspect they would 
be neglected, like the commons adjoining their village. These had 
apparently, at one time, been under crop. The cattle of the neigh- 
bouring settlers would now, however, destroy any crop not securely 
fenced, and this additional necessary outlay consequently bars their 
culture. It removes them to an order of instruments of slower return 
than that which corresponds to the strength of the effective desire 
of accumulation in this httle society. 

" It is here deserving of notice, that what instruments of this kind 
they do form, are completely formed. The small spots of corn they 
cultivate are thoroughly weeded and hoed. A little neglect in this 
part would indeed reduce the crop very much ; of this experience 
has made them perfectly aware, and they act accordingly. It is 
evidently not the necessary labour that is the obstacle to more ex- 
tended culture, but the distant return from that labour. I am 
assured, indeed, that among some of the more remote tribes, the labour 
thus expended much exceeds that given by the whites. The same 
portions of ground being cropped without remission, and manure not 
being used, they would scarcely yield any return, were not the soil 



LAW OF THE INCREASE OF CAPITAL 169 

most carefully broken and pulverized, both with the hoe and the 
hand. In such a situation a white man would clear a fresh piece of 
ground. It would perhaps scarce repay his labour the first year, 
and he would have to look for his reward in succeeding years. On 
the Indian, succeeding years are too distant to make sufficient 
impression ; though, to obtain what labour may bring about in the 
course of a few months, he toils even more assiduously than the white 

55 jfe 

man. * 

This view of things is confirmed by the experience of the Jesuits, 
in their interesting efforts to civiHze the Indians of Paraguay. 
They gained the confidence of these savages in a most extraordinary 
degree. They acquired influence over them sufficient to make them 
change their whole manner of life. They obtained their absolute 
submission and obedience. They established peace. They taught 
them all the operations of European agriculture, and many of the 
more difficult arts. There were everywhere to be seen, according to 
Charlevoix *' workshops of gilders, painters, sculptors, goldsmiths, 
vvatchmakers, carpenters, joiners, dyers," &c. These occupations 
were not practised for the personal gain of the artificers : the 
produce was at the absolute disposal of the missionaries, who 
ruled the people by a voluntary despotism. The obstacles arising 
from aversion to labour were therefore very completely over- 
come. The real difficulty was the improvidence of the people ; 
their inabihty to think for the future : and the necessity accordingly 
of the most unremitting and minute superintendence on the part of 
their instructors. " Thus at first, if these gave up to them the care 
of the oxen with which they ploughed, their indolent thoughtlessness 
would probably leave them at evening still yoked to the implement. 
Worse than this, instances occurred where they cut them up for 
supper, thinking, when reprehended, that they sufficiently excused 
themselves by saying they were hungry. . . . These fathers, says 
Ulloa, have to visit the houses, to examine what is really wanted : 
for without this care, the Indians would never look after anything. 
They must be present, too, when animals are slaughtered, not only 
that the meat may be equally divided, but that nothing may be lost." 
" But notwithstanding aU this care and superintendence," says 
Charlevoix, " and all the precautions which are taken to prevent any 
want of the necessaries of life, the missionaries are sometimes much 
embarrassed. It often happens that they " (the Indians) " do not 
reserve to themselves a sufficiency of grain, even for seed. As for 
* Rae, p. 136 [ed. Mixter, p. 71]. 



170 BOOK I. CHAiTER XI. § 3 

their otlier provisions, were they not well looked after, chey would 
soon be without wherewithal to support Hfe."* 

As an example intermediate, in the strength of the effective 
desire of accumulation, between the state of things thus depicted 
and that of modern Europe, the case of the Chinese deserves attention. 
From various circumstances in their personal habits and social con- 
dition, it might be anticipated that they would possess a degree of 
prudence and self-control greater than other Asiatics, but inferior 
to most European nations ; and the following evidence is adduced 
of the fact. 

" Durability is one of the chief qualities, marking a high degree 
of the effective desire of accumulation. The testimony of travellers 
ascribes to the instruments formed by the Chinese a very inferior 
durabiUty to similar instruments constructed by Europeans. The 
houses, we are told, unless of the higher ranks, are in general of un- 
burnt bricks, of clay, or of hurdles plastered with earth ; the roofs, 
of reeds fastened to laths. We can scarcely conceive more unsub- 
stantial or temporary fabrics. Their partitions are of paper, requiring 
to be renewed every year. A similar observation may be made 
concerning their implements of husbandry, and other utensils. 
They are almost entirely of wood, the metals entering but very 
sparingly into their construction ; consequently they soon wear out, 
and require frequent renewals. A greater degree of strength in the 
effective desire of accumulation would cause them to be constructed 
of materials requiring a greater present expenditure but being far 
more durable. From the same cause, much land, that in other coun- 
tries would be cultivated, lies waste. All travellers take notice of 
large tracts of lands, chiefly swamps, which continue in a state of 
nature. To bring a swamp into tillage is generally a process, to 
complete which, requires several years. It must be previously 
drained, the surface long exposed to the sun, and many operations 
performed, before it can be made capable of bearing a crop. Though 
yielding, probably, a very considerable return for the labour bestowed 
on it, that return is not made until a long time has elapsed. The 
cultivation of such land implies a greater strength of the effective 
desire of accumulation than exists in the empire. 

" The produce of the harvest is, as we have remarked, always an 

instrument of some order or another ; it is a provision for future 

want, and regulated by the same laws as those to which other means 

of attaining a similar end conform. It is there chiefly xice, of which 

* Rae, p. 140 [ed. Mixter, p. 76]. 



LAW OF THE INCREASE OF CAPITAL 171 

there are two harvests, the one in June, the other in October. The 
period then of eight months between October and June, is that for 
which provision is made each year, and the different estimate they 
make of to-day and this day eight months will appear in the self- 
denial they practise now, in order to guard against want then. 
The amount of this self-denial would seem to be small. The father 
Parennin, indeed, (who seems to have been one of the most intelligent 
of the Jesuits and spent a long life among the Chinese of all classes,) 
asserts, that it is their great deficiency in forethought and frugaUty 
in this respect, which is the cause of the scarcities and famines that 
frequently occur." 

That it is defect of providence, not defect of industry, that 
limits production among the Chinese, is still more obvious than in 
the case of the semi-agriculturized Indians. " Where the returns 
are quick, where the instruments formed require but little time to 
bring the events for which they Tvere formed to an issue," it is well 
known that " the great progress which has been made in the know- 
ledge of the arts suited to the nature of the country and the wants 
of its inhabitants " makes industry energetic and effective. " The 
warmth of the cHmate, the natural fertility of the country, the know- 
ledge which the inhabitants have acquired of the arts of agriculture, 
and the discovery and gradual adaptation to every soil of the 
most useful vegetable productions, enable them very speedily to 
draw from almost any part of the surface, what is there esteemed 
an equivalent to much more than the labour bestowed in tilHng 
and cropping it. They have commonly double, sometimes treble 
harvests. These when they consist of a grain so productive as rice, 
the usual crop, can scarce fail to yield to their skill, from almost any 
portion of soil that can be at once brought into culture, very ample 
returns. Accordingly there is no spot that labour can immediately 
bring under cultivation that is not made to yield to it. Hills, 
even mountains, are ascended and formed into terraces ; and water, 
in that country the great productive agent, is led to every part 
by drains, or carried up to it by the ingenious and simple hydrauHc 
machines which have been in use from time immemorial among 
this singular people. They effect this the more easily, from the soil, 
even in these situations, being very deep and covered with much 
vegetable mould. But what yet more than this marks the readiness 
with which labour is forced to form the most difficult materials 
into instruments, where these instruments soon bring to an issue 
the events for which they are formed, is the frequent occurrence 



172 BOOK~i: CHAFTEK XL § 3 

on many of their lakes and rivers, of structures resembling the 
floating gardens of the Peruvians, rafts covered with vegetable soil 
and cultivated. Labour in this way draws from the materials on 
which it acts very speedy returns. Nothing can exceed the luxuri- 
ance of vegetation when the quickening powers of a genial sun are 
ministered to by a rich soil and abundant moisture. It is otherwise, 
as we have seen, in cases where the return, though copious, is distant. 
European travellers are surprised at meeting these little floating farms 
by the side of swamps which only require draining to render them 
'tillable. It seems to them strange that labour should not rather be 
bestowed on the solid earth, where its fruits might endure, than on 
structures that must decay and perish in a few years. The people 
they are among think not so much of future years as of the present 
time. The elective desire of accumulation is of very different 
strength in the one, from what it is in the other. The views of the 
European extend to a distant futurity, and he is surprised at the 
Chinese, condemned through improvidence, and want of sufficient 
prospective care, to incessant toil, and, as he thinks, insufferable 
wretchedness. The views of the Chinese are confined to narrower 
bounds ; he is content to five from day to day, and has learnt 
to conceive even a Hfe of toil a blessing." * 

When a country has carried production as far as in the existing i 
state of knowledge it can be carried with an amount of return corres- 
ponding to the average strength of the effective desire of accumula- 
tion in that country, it has reached what is called the stationary 
state ; the state in which no further addition will be made to capital, 
unless there takes place either some improvement in the arts of 
production, or an increase in the strength of the desire to accumulate. 
In the stationary state, though capital does not on the whole increase, 
some persons grow richer and others poorer. Those whose degree 
of providence is below the usual standard, become impoverished, 
their capital perishes, and makes room for the savings of those whose 
effective desire of accumulation exceeds the average. These become 
the natural purchasers of the lands, manufactories, and other 
instruments of production owned by their less provident countrymen. 

What the causes are which make the return to capital greater 
in one country than in another, and which, in certain circumstances, 
make it impossible for any additional capital to find investment 
unless at diminished returns, will appear clearly hereafter. In 
China, if that country has really attained, as it is supposed to have 
♦ Bae, pp. 151-6 [ed. Mixter, pp. 88-92], 



LAW OJ^' THE INCREASE OF CAPITAL 173 

done, the stationary state, accumulation has stopped when the 
returns to capital are still [1848] as high as is indicated by a rate 
of interest legally twelve per cent, and practically varying (it is said) 
between eighteen and thirty-six. It is to be presumed therefore 
that no greater amount of capital than the country already possesses, 
can find employment at this high rate of profit, and that any lower 
rate does not hold out to a Chinese sufficient temptation to induce 
him to abstain from present enjoyment. What a contrast with 
Holland, where, during the most flourishing period of its history, 
the government was able habitually to borrow at two per cent, and 
private indi^dduals, on good security, at three. Since China is not a 
country like Burmah or the native states of India, where an enormous 
interest is but an indispensable compensation for the risk incurred 
from the bad faith or poverty of the state, and of almost all private 
borrowers ; the fact, if fact it be, that the increase of capital has 
come to a stand while the returns to it are still so large, denotes a 
much less degree of the effective desire of accumulation, in other 
words a much lower estimate of the future relatively to the present, 
than that of most European nations. 

§ 4. We have hitherto spoken of countries in which the average 
strength of the desire to accumulate is short of that which, in circum- 
stances of any tolerable security, reason and sober calculation would 
approve. We have now to speak of others in which it decidedly 
surpasses that standard. In the more prosperous countries of 
Europe, there are to be found abundance of prodigals ; in some of 
them (and in none more than England) the ordinary degree of 
economy and providence among those who live by manual labour 
cannot be considered high : still, in a very numerous portion of 
the community, the professional, manufacturing, and trading classes, 
being those who, generally speaking, unite more of the means with 
more of the motives for saving than any other class, the spirit of 
accumulation is so strong, that the signs of rapidly increasing wealth 
meet every eye : and the great amount of capital seeking investment 
excites astonishment, whenever peculiar circumstances turning 
much of it into some one channel, such as railway construction or 
foreign speculative adventure, bring the largeness of the total amount 
into evidence. 

There are many circumstances, which, in England, give a peculiar 

i_ force to the accumulating propensity. The long exemption of the 

country from the ravages of war, and the far earlier period than 



1/4 S>\JKJJ^ X. vii-O-i xjjixw -ism s^r- 



elsewhere at whicli property was secure from military violence or 
arbitrary spoliation, have produced a long-standing and hereditary 
confidence in the safety of funds when trusted out of the owner's 
hands, which in most other countries is of much more recent origin, 
and less firmly established. The geographical causes which have 
made industry rather than war the natural source of power and 
importance to Great Britain, have turned an unusual proportion 
of the most enterprising and energetic characters into the direction 
of manufactures and commerce ; into supplying their wants and 
gratifjdng their ambition by producing and saving, rather than 
by appropriating what has been produced and saved. Much also 
depended on the better political institutions of this country, which 
:f*^by the scope they have allowed to individual freedom of action, have 
'■'■'^encouraged personal activity and self-reliance, while by the liberty 
they confer of association and combination, they facilitate industrial 
enterprise on a large scale. The same institutions in another of 
their aspects, give a most direct and potent stimulus to the 
desire of acquiring wealth. The earher dechne of feudahsm 
having removed or much weakened invidious distinctions between 
the originally trading classes and those who have been accustomed 
to despise them ; and a polity having grown up which made wealth 
the real source of pohtical influence ; its acquisition was invested 
with a factitious value, independent of its intrinsic utility. It be- 
came synonymous with power ; and since power with the common 
herd of mankind gives power, wealth became the chief source of 
personal consideration, and the measure and stamp of success in Ufe. 
To get out of one rank in society into the next above it, is the great 
aim of English middle-class life, and the acquisition of wealth the 
means. And inasmuch as to be rich without industry has always 
hitherto constituted a step in the social scale above those who are 
rich by means of industry, it becomes the object of ambition to save 
not merely as much as will afford a large income while in business, 
but enough to retire from business and live in affluence on realized 
gains. These causes have, in England, been greatly aided by that 
extreme incapacity of the people for personal enjoyment, which isa'^ 
characteristic of countries over which puritanism has passed. But 
if accumulation is, on one hand, rendered easier by the absence of a 
taste for pleasure, it is, on the other, made more difficult by the 
presence of a very real taste for expense. So strong is the association 
between personal consequence and the signs of wealth, that the silly 
desire for the appearance of a large expenditure has the force of a 



4~ 



passion, among large classes of a nation which derives less pleasure 
than perhaps any other in the world from what it spends. Owing 
to this circumstance, the effective desire of accumulation has never 
reached so high a pitch in England as it did in Holland, where, there 
being no rich idle class to set the example of a reckless expenditure, 
and the mercantile classes, who possessed the substantial power on 
which social influence always waits, being left to estabhsh their own 
scale of hving and standard of propriety, their habits remained 
frugal and unostentatious. 

In England and Holland, then, for a long time past, and now 
in most other countries in Europe (which are rapidly following 
England in the same race), the desire of accumulation does not require, 
to make it effective, the copious returns which it requires in Asia, 
but is sufficiently called into action by a rate of profit so low, that 
instead of slackening, accumulation seems now to proceed more 
rapidly than ever ; and the second requisite of increased production, 
increase of capital, shows no tendency to become deficient. So 
far as that element is concerned, production is susceptible of an 
increase without any assignable bounds. 

The progress of accumulation would no doubt be considerably 
checked if the returns to capital were to be reduced still lower than 
at present. But why should any possible increase of capital have 
that effect ? This question carries the mind forward to the remaining 
one of the three requisites of production. The limitation to pro- 
duction, not consisting in any necessary limit to the increase of the 
other two elements, labour and capital, must turn upon the proper- 
ties of the only element which is inherently, and in itself, limited 
in quantity. It must depend on the properties of land. 



CHAPTER XII 

OF THE LAW OP THE INCREASE OF PRODUCTION FROM LAND 

§ 1. Land differs from the other elements of production, labour 
and capital, in not being susceptible of indefinite increase. Its 
extent is limited, and the extent of the more productive kinds of it 
more limited still. It is also evident that the quantity of produce 
capable of being raised on any given piece of land is not indefinite. 
This Hmited quantity of land, and limited productiveness of it, are 
the real limits to the increase of production. 

That they are the ultimate limits, must always have been clearly 
seen. But since the final barrier has never in any instance been 
reached ; since there is no country in which all the land, capable of 
yielding food, is so highly cultivated that a larger produce could 
not (even without supposing any fresh advance in agricultural 
knowledge) be obtained from it, and since a large portion of the earth's 
surface still remains entirely uncultivated ; it is commonly thought, 
and is very natural at first to suppose, that for the present all 
limitation of production or population from this source is at an 
indefinite distance, and that ages must elapse before any practical 
necessity arises for taking the limiting principle into serious 
consideration. 

I apprehend this to be not only an error, but the most serious one, 
to be found in the whole field of political economy. The question 
is more important and fundamental than any other ; it involves 
the whole subject of the causes of poverty, in a rich and industrious 
community : and unless this one matter be thoroughly understood, 
it is to no purpose proceeding any further in our inquiry. 

§ 2. The limitation to production from the properties of the 
soil, is not like the obstacle opposed by a wall, which stands im- 
movable in one particular spot, and offers no hindrance to motion 



LAW OF INCREASE OF PRODITCTlON FROM LAND TTT 

short of stopping it entirely. We may rather compare it to a 
highly elastic and extensible band, which is hardly ever go 
violently stretched that it could not possibly be stretched any 
more, yet the pressure of which is felt long before the final limit is 
reached, and felt more severely the nearer that Umit is approached. 

Aft^ a certain, and not very advanced, stage in the progress 
of agriculture,! it is the law of production from the land , that in 
any given state of agricultural skill and knowledge, by increasing 
the labour, the produce is not increased in an equal degree ; doubling 
the labour does not double the produce ; or, to express the same 
thing in other words, every increase of produce is obtained by a 
more than proportional increase in the application of labour to the 
land. 

This general law of agricultural industry is the most important 
proposition in political economy. Were the law different, nearly 
all the phenomena of the production and distribution of wealth 
would be other than they are. The most fundamental errors which 
still prevail on our subject, result from not perceiving this law at 
work underneath the more superficial agencies on which attention 
fixes itself ; but mistaking those agencies for the ultimate causes 
of effects of which they may influence the form and mode, but of 
which it alon€ determines the essence. 

When, for the purpose of raising an increase of produce recourse 
is had to inferior land, it is evident that, so far, the produce does 
not increase in the same proportion with the labour. The very 
meaning of inferior land, is land which with equal labour returns 
a smaller amount of produce. Land may be inferior either in 
fertihty or in situation. The one requires a greater proportional 
amount of labour for growing the produce, the other for carrying 
it to market. If the land A yields a thousand quarters of wheat, 
to a given outlay in wages, manure, &c., and in order to raise another 
thousand recourse must be had to the land B, which is either less 
fertile or more distant from the market, the two thousand quarters 
will cost more than twice as much labour as the original thousand, 
and the produce of agriculture will be increased in a less ratio than 
the labour employed in procuring it. 

Instead of cultivating the land B, it would be possible, by 
higher cultivation, to make the land A produce more. It might 

* [From the 6tli ed. (1865) was first omitted the following explanatory 
clause of the original : " as soon, in fact, as men have applied themselves to 
cultivation with any energy, and have brought to it any tolerable tools."] 



"TTS iiUUJV i. CH^irTEEr^XL. §^ 

be ploughed or harrowed twice instead of once, or three times 
instead of twice ; it might be dug instead of being ploughed ; 
after ploughing, it might be gone over with a hoe instead of a harrow, 
and the soil more completely pulverized ; it might be oftener or 
more thoroughly weeded ; the implements used might be of higher 
finish, or more elaborate construction ; a gTeater quantity or more 
expensive kinds of manure might be applied, or, when apphed, they 
might be more carefully mixed and incorporated with the soil. 
These are some of the modes by which the same land may be made 
to yield a greater produce ; and when a greater produce must be had, 
some of these are among the means usually employed for obtaining 
it. But, that it is obtained at a more than proportional increase 
of expense, is evident from the fact that inferior lands are cultivated. 
Inferior lands, or lands at a greater distance from the market, of 
course yield an inferior return, and an increasing demand cannot 
be suppHed from them unless at an augmentation of cost, and there- 
fore of price. If the additional demand could continue to be supphed 
from the superior lands, by applying additional labour and capital, 
at no greater proportional cost, than that at which they yield the 
quantity first demanded of them, the owners or farmers of those 
lands could undersell all others, and engross the whole market. 
Lands of a lower degree of fertility or in a more remote situation, might 
indeed be cultivated by their proprietors, for the sake of subsistence 
or independence ; but it never could be the interest of any one 
to farm them for profit. That a profit can be made from them, 
sufiicient to attract capital to such an investment, is a proof that 
cultivation on the more eligible lands has reached a point, beyond 
which any greater application of labour and capital would yield, 
at the best, no greater return than can be obtained at the same 
expense from less fertile or less favourably situated lands. 

The careful cultivation of a well-farmed district of England 
or Scotland is a symptom and an efiect of the more unfavourable 
terms which the land has begun to exact for any increase of its 
fruits. Such elaborate cultivation costs much more in proportion, 
and requires a higher price to render it profitable, than farming 
on a more superficial system ; and would not be adopted if access 
could be had to land of equal fertiHty, previously unoccupied. 
Where there is the choice of raising the increasing supply which 
society requires, from fresh land of as good quality as that already 
cultivated, no attempt is made to extract from land anything 
approaching to what it will yield on what are esteemed the best 



European modes of cultivating. The land is tasked up to the 
point at which the greatest return is obtained in proportion to the 
labour employed, but no further : any additional labour is carried 
elsewhere. " It is long," says an inteUigent traveller in the United 
States,* " before an English eye becomes reconciled to the lightness 
of the crops and the careless farming (as we should call it) which 
is apparent. One forgets that where land is so plentiful and labour 
so dear as it is here, a totally different principle must be pursued 
to that which prevails in populous countries, and that the conse- 
quence will of course be a want of tidiness, as it were, and finish, 
about everything which requires labour." Of the two causes men- 
tioned, the plentifulness of land seems to me the true explanation, 
rather than the dearness of labour ; for, however dear labour may 
be, when food is wanted, labour will always be applied to producing 
it in preference to anything else. But this labour is more effective 
for its end by being apphed to fresh soil, than if it were employed 
in bringing the soil already occupied into higher cultivation. Only 
when no soil remains to be broken up but such as either from distance 
or inferior quahty require a considerable rise of price to render 
their cultivation profitable, can it become advantageous to apply the 
high farming of Europe to any American lands ; except, perhaps, 
in the immediate vicinity of towns, where saving in cost of carriage 
may compensate for great inferiority in the return from the soil 
itself. As American farming is [1848] to England, so is the ordinary 
EngHsh to that of Flanders, Tuscany, or the Terra di Lavoro ; 
where by the application of a far greater quantity of labour there 
is obtained a considerably larger gross produce, but on such terms 
as would never be advantageous to a mere speculator for profit, 
unless made so by much higher prices of agricultural produce. 

The principle which has now been stated must be received, 
no doubt, with certain explanations and limitations^ Even after 
the land is so highly cultivated that" the mere application of ad- 
ditional labour, or of an additional amount of ordinary dressing, 
would yield no return proportioned to the expense, it may still 
happen that the application of a much greater additional labour 
and capital to improving the soil itself, by draining or permanent 
manures, would be as liberally remunerated by the produce, as any 
portion of the labour and capital already employed. It would 
sometimes be much more amply remunerated. This could not be, if 

* Letters from America, by John Robert Godley, vol. i. p. 42. See also 
Lyell's Travels in America, vol. ii. p. 83. 



capital always souglit and found the most advantageous employment ; 
but if tlie most advantageous employment lias to wait longest for 
its remuneration, it is only in a rather advanced stage of industrial 
development that the preference will be given to it ; and even in that 
advanced stage, the laws or usages connected with property in land 
and the tenure of farms are often such as to prevent the disposable 
capital of the country from flowing freely into the channel of agri- 
cultural improvement : and hence the increased supply, required by 
increasing population, is sometimes raised at an augmenting cost by 
higher cultivation, when the means of producing it without increase of 
cost are known and accessible. There can be no doubt, that if 
capital were forthcoming to execute, within the next year, all known 
and recognised improvements in the lands of the United Kingdom 
which would pay at the existing prices, that is, which would increase 
the produce in as great or a greater ratio than the expense ; the 
result would be such (especially if we include Ireland in the sup- 
position) that inferior land would not for a long time require to be 
brought under tillage : probably a considerable part of the less 
productive lands now cultivated, which are not particularly favoured 
by situation, would go out of culture ; or (as the improvements in 
question are not so much appHcable to good land, but operate 
rather by converting bad land into good) the contraction of cultiva- 
tion might principally take place by a less high dressing and less 
elaborate tilling of land generally ; a falUng back to something 
nearer the character of American farming ; such only of the poor 
lands being altogether abandoned as were not found susceptible 
of improvement. And thus the aggregate produce of the whole 
cultivated land would bear a larger proportion than before to the 
labour expended on it : and the general law of diminishing return 
from land would have undergone, to that extent, a temporary 
supersession. No one, however, can suppose that even in these 
circumstances, the whole produce required for the country could 
be raised exclusively from the best lands, together with those 
possessing advantages of situation to place them on a par with the 
best. Much would undoubtedly continue to be produced under 
less advantageous conditions, and with the smaller proportional 
return, than that obtained from the best soils and situations. And 
in proportion as the further increase of population required a still 
greater addition to the supply, the general law would resume its 
course, and the further augmentation would be obtained at a 
more than proportionate expense of labour and capital. 



§ 3. 1 That the produce of land increases, cceteris paribus, in 
a diminishing ratio to the increase in the labour employed, is a 
truth more often ignored or disregarded than actually denied. It 
has, however, met with a direct impugner in the well-known American 
poHtical economist, Mr. H. C. Carey, who maintains that the real 
law of agricultural industry is the very reverse ; the produce 
increasing in a greater ratio than the labour, or in other words 
affording to labour a perpetually increasing return. To substantiate 
this assertion, he argues that cultivation does not begin with the 
better soils, and extend from them, as the demand increases, to the 
poorer, but begins with the poorer, and does not, till long after, 
extend itself to the more fertile. Settlers in a new country invariably 
commence on the high and thin lands ; the rich but swampy soils 
of the river bottoms cannot at first be brought into cultivation, by 
reason of their unhealthiness, and of the great and prolonged labour 
required for clearing and draining them. As population and 
wealth increase, cultivation travels down the hill sides, clearing 
them as it goes, and the most fertile soils, those of the low grounds, 
are generally (even he says universally) the latest cultivated. These 
propositions, with the inferences which Mr. Carey draws from them, 
are set forth at much length in his latest and most elaborate treatise, 
Principles of Social Science ; and he considers them as subverting 
the very foundation of what he calls the EngHsh poUtical economy, 
with all its practical consequences, especially the doctrine of free 
trade. 

As far as words go, Mr. Carey has a good case against several 
of the highest authorities in political economy, who certainly did 
enunciate in too universal a manner the law which they laid down, 
not remarking that it is not true of the first cultivation in a newly 
settled country. Where population is thin and capital scanty, 
land which requires a large outlay to render it fit for tillage must 
remain untilled ; though such lands, when their time has come, 
often yield a greater produce than those earlier cultivated, not only 
absolutely, but proportionally to the labour employed, even if we 
include that which has been expended in originally fitting them for 
culture. But it is not pretended that the law of diminishing return; 
was operative from the very beginning of society : and though someH 

^ [The account of Carey's argument, occupying this and the next two para- 
graphs, took the place in the 6th ed. (1865) of the brief paragraph referring, 
without mentioning any name, to the assertion that " the returns from land 
are greater in an advanced, than in an early, stage of cultivation — when much 
capital, than when little, is appUed to agriculture.] 



~oxi3xnrniiS)2sxri ^~~ar 



political economists may have believed it to come into operation 
earlier than it does, it begins quite early enough to support the 
conclusions they founded on it. Mr. Carey will hardly assert that 
in any old country — in England or France, for example — the lands 
left T^^aste are, or have for centuries been, more naturally fertile than 
those under tillage. Judging even by his own imperfect test, that 
of local situation— how imperfect T need not stop to point out — is it 
true that in England or France at the present day the uncultivated 
part of the soil consists of the plains and valleys, and the cultivated, 
of the hills ? Every one knows, on the contrary, that it is the 
high lands and thin soils which are left to nature, and when 
the progress of population demands an increase of cultivation, the 
extension is from the plains to the hills. Once in a century, perhaps, 
a Bedford Level may be drained, or a Lake of Harlem pumped out : 
but these are slight and transient exceptions to the normal progress 
of things ; and in old coimtries which are at all advanced in civiliza- 
tion, Httle of this sort remains to be done.* 

Mr. Carey himself unconsciously bears the strongest testimony 
to the reality of the law he contends against : for one of the pro- 
positions most strenuously maintained by him is, that the raw 
products of the soil, in an advancing community, steadily tend to 
rise in price. Now, the most elementary truths of political economy 
show that this could not happen, unless the cost of production, 
measured in lal^our, of those products, tended to rise. If the 
appHcation of additional labour to the land was, as a general rule, 
attended with an increase in the proportional return, the price of 
produce, instead of rising, must necessarily fall as society advances, 
unless the cost of production of gold and silver fell still more : a case 
so rare, that there are only two periods in all history when it is 
known to have taken place ; the one, that which followed the open- 
ing of the Mexican and Peruvian mines ; the other, that in which 
we now live. At all known periods, except these two, the cost of 
production of the precious metals has been either stationary or 
rising. If, therefore, it be true that the tendency of agricultural 
produce is to rise in money price as wealth and population increase, 
there needs no other evidence that the labour required for raising 

* Ireland may be alleged as an exception ; a large fraction of the entire soil 
of that country being still [1865] incapable of cultivation for want of drainage. 
But though Ireland is an old country, unfortunate social and political circum- 
stances have kept it a poor and backward one. Neither is it at all certain that 
the bogs of Ireland, if drained and brought under tillage, would take their place 
along with Mr. Carey's fertile river bottoms, or amc ng any but the poorer soils. 



LAW OF INCREASE OF PRODUCTION FROM LAND 183 

it from tKe soil tends to augment when a greater quantity is de- 
manded. 

I do not go so far as Mr. Carey : I do not assert that the cost 
of production, and consequently the price, of agricultural produce, 
always and necessarily rises as population increases. It tends to do 
so ; but the tendency may be, and sometimes is, even during 
long periods, held in check. The efiect does not depend on a 
single principle, but on two antagonizing principles. Th^e^ is 
another agency, in habitual antagonism to the law of diminishing^ 
return 5om_landj and to the consideration of this we shall now 
proceed. It is no other than t he prog ress of civiUzation^ I use 
this general and somewhat vague expression, because the things 
to be included are so various, that hardly any term of a more re- 
stricted signification would comprehend them all. 

Of these, the -most obvious is the progress of a gricultura l know^ 
led ^e, skiU, and invention. Improved processes of agriculture 
are of two kinds : some enable the land to yield a greater absolute 
produce, without an equivalent increase of labour ; others have not 
the power of increasing the produce, but have that of diminishing 
the labour and expense by which it is obtained. Among the first 
are to be reckoned the disuse of fallows, by means of the rotation 
of crops ; and the introduction of new articles of cultivation capable 
of entering advantageously into the rotation. The change made 
in British agriculture towards the close of the last century, by the 
introduction of turnip husbandry, is spoken of as amounting to a 
revolution. These improvements operate not only by enabhng 
the land to produce a crop every year, instead of remaining idle 
one year in every two or three to renovate its powers, but also 
by direct increase of its productiveness ; since the great addition 
made to the number of cattle, by the increase of their food, affords 
more abundant manure to fertilize the corn lands. Next in order 
comes the introduction of new articles of food, containing a greater 
amount of sustenance, Hke the potato, or more productive species 
or varieties of the same plant, such as the Swedish turnip. In the same 
class of improvements must be placed a better knowledge of the 
properties of manures, and of the most effectual modes of applying 
them ; the introduction of new and more powerful fertilizing agents, 
such as guano, and the conversion to the same purpose of substances 
previously wasted ; inventions like subsoil-ploughing or tile 
draining ; improvements in the breed or feeding of labouring 
cattle ; augmented stock of the animals which consume and convert 



184 BOOK I. CHAPTER XII. § 3 

into human food wliat would otherwise be wasted ; and the like. 
The other sort of improvements, those which diminish labour, but 
without increasing the capacity of the land to produce, are such 
as the improved construction of tools ; the introduction of new 
instruments which spare manual labour, as the winnowing and 
threshing machines ; a more skilful and economical application 
of muscular exertion, such as the introduction, so slowly accom- 
plished in England, of Scotch ploughing, with two horses abreast 
and one man, instead of three or four horses in a team and two 
men, &c. These improvements do not add to the productiveness 
of the land, but they are equally calculated with the former to 
counteract the tendency in the cost of production of agricultural 
produce to rise with the progress of population and demand. 

Analogous in effect to this second class of agricultural improve- 
ments, are improved means of communication. Good roads are 
equivalent to good tools. It is of no consequence whether the 
economy of labour takes place in extracting the produce from the 
soil, or in conveying it to the place where it is to be consumed. 
Not to say in addition, that the labour of cultivation itself is 
diminished by whatever lessens the cost of bringing manure from 
a distance, or facihtates the many operations of transport from 
place to place which occur within the bounds of the farm. Kailways 
and canals are virtually a diminution of the cost of production 
of all things sent to market by them ; and literally so of all those, 
the appUances and aids for producing which, they serve to transmit. 
By their means land can be cultivated, which could not otherwise 
have remunerated the cultivators without a rise of price. Improve- 
ments in navigation have, with respect to food or materials brought 
from beyond sea, a corresponding effect. 

From similar considerations, it appears that many purely 
mecha nical im provements, which have, apparently at least, no 
peculiar connexion with agriculture, nevertheless enable a given 
amount of food to be obtained with a smaller expenditure of labour. 
A great improvement in the process of smelting iron would tend 
to cheapen agricultural implements, diminish the cost of railroads, 
of waggons and carts, ships, and perhaps buildings, and many other 
things to which iron is not at present applied, because it is too 
costly ; and would thence diminish the cost of production of food. 
The same effect would follow from an improvement in those pro- 
cesses of what may be termed manufacture to which the material 
of food is subjected after it is separated from the ground. The 



LAW OF INCREASE OF PRODUCTION FROM LAND 185 

first application of wind or water power to grind corn tended to 
cheapen bread as mucli as a very important discovery in agriculture 
would have done ; and any great improvement in the construction 
of corn-mills would have, in proportion, a similar influence. The 
effects of cheapening locomotion have been already considered. 
There are also engineering inventions which faciUtate all great 
operations on the earth's surface. An improvement in the art of 
taking levels is of importance to draining, not to mention canal 
and railway making. The fens of Holland, and of some parts of 
England, are drained by pumps worked by the wind or by steam. 
Where canals of irrigation, or where tanks or embankments are 
necessary, mechanical skill is a great resource for cheapening pro- 
duction. 

Those manufacturing improvements which cannot be made 
instrumental to facilitate, in any of its stages, the actual production 
of food, and therefore do not help to counteract or retard the 
diminution of the proportional return to labour from the soil, have, 
however, another effect, which is practically equivalent. What 
they do not prevent, they yet, in some degree, compensate for. ' 

The materials of manufacture being all drawn from the land, 
and many of them from agriculture, which supplies in particular 
the entire material of clothing ; the general law of production 
from the land, the law of diminishing return, must in the last 
resort be applicable to manufacturing as well as to agricultural 
history. As population increases, and the power of the land to 
yield increased produce is strained harder and harder, any additional 
supply of material, as well as of food, must be obtained by a more 
than proportionally increasing expenditure of labour. But the cost of 
the material forming generally a very small portion of the entire 
cost of the manufacture, the agricultural labour concerned in the 
production of manufactured goods is but a small fraction of 
the whole labour worked up in the commodity. All the rest of the 
labour tends constantly and strongly towards diminution, as the 
amount of production increases. Manufactures are vastly more 
susceptible than agriculture of mechanical improvements, and 
contrivances for saving labour ; and it has already been seen how 
greatly the division of labour, and its skilful and economical dis- 
tribution, depend on the extent of the market, and on the possibility 
of production in large masses. In manufactures, accordingly, the 
causes tending to increase the productiveness of industry, pre^ I 
ponderate greatly over the one cause which tends to diminish it : and I 



186 BOOK L CHAPTER XII. § 3 

tlie increase of production, called forth by the progress of society, 
takes place, not at an increasing, but at a continually diminisbing 
proportional cost. This fact has manifested itself in the progressive 
fall of the prices and values of almost every kind of manufactured 
goods during two centuries past ; a fall accelerated by the mechanical 
inventions of the last seventy or eighty years, and susceptible of 
being prolonged and extended beyond any limit which it would be 
safe to specify. 

Now it is quite conceivable that the efficiency of agricultural 
labour might be undergoing, with the increase of produce, a gradual 
diminution ; that the price of food, in consequence, might be pro- 
gressively rising, and an ever growing proportion of the population 
might be needed to raise food for the whole ; while yet the productive 
power of labour in all other branches of industry might be so rapidly 
augmenting, that the required amount of labour could be spared 
from manufactures, and nevertheless a greater produce be obtained, 
and the aggregate wants of the community be on the whole better 
suppHed, than before. The benefit might even extend to the poorest 
class. The increased cheapness of clothing and lodging might make 
up to them for the augmented cost of their food. 

There is, thus, no possible improvement in the arts of production 
which does not in one or another mode exercise an antagonist 
influence to the law of diminishing return to agricultural labour. 
Nor is it only industrial improvements which have this effect. 
I Improvements in government, and almost every kind of moral 
anJ"^ocial advancement, operate in the same manner. \ Suppose 4- 
a country in the condition of France before the Revolution : taxa- 
tion imposed almost exclusively on the industrial classes, and on 
Buch a principle as to be an actual penalty on production ; and no 
redress obtainable for any injury to property or person, when 
inflicted by people of rank, or court influence. Was not the hurri- 
cane which swept away this system of things, even if we look no 
further than to its effect in augmenting the productiveness of 
labour, equivalent to many industrial inventions ? The removal 
of a fiscal burthen on agriculture, such as tithe, has the same effect 
as if the labour necessary for obtaining the existing produce were 
suddenly reduced one-tenth. The abohtion of corn laws, or of 
any other restrictions which prevent commodities from being 
produced where the cost of their production is lowest, amounts to 
a vast improvement in production. When fertile land, previously 
reserved as hunting ground, or for any other purpose of amusement, 



LAW OF INCREASE OF PRODUCTION FROM LAND 187 

is set free for culture, tlie aggregate productiveness of agricultural 
industry is increased. It is well known what has been the effect 
in England of badly administered poor laws, and the still worse 
effect in Ireland of a bad system of tenancy, in rendering agricultural 
labour slack and inefiective. No improvements operate more 
directly upon the productiveness of labour, than those in the tenure 
of farms, and in the laws relating to landed property. The breaking 
up of entails, the cheapening of the transfer of property, and whatever 
else promotes the natural tendency of land, in a system of freedom, 
to pass out of hands which can make little of it into those which 
can make more ; the substitution of long leases for tenancy at will, 
and of any tolerable system of tenancy whatever for the wretched 
cottier system ; above all, the acquisition of a permanent interest 
in the soil by the cultivators of it ; all these things are as real, and 
some of them as great, improvements in production^ as the invention 
of the spinning-jenny or the steam-engine. 

We may say the same of improvements in education. The 
inteUigence of the workman is a most important element in the 
productiveness of labour. So low, in some of the most civilized 
countries, is the present [1848] standard of intelligence, that there is 
hardly any source from which a more indefinite amount of improve- 
ment may be looked for in productive power, than by endowing 
with brains those who now have only hands. The carefulness, 
economy, and general trustworthiness of labourers are as important 
as their inteUigence. Friendly relations, and a community of 
interest and feeling between labourers and employers, are eminently 
so : I should rather say, would be : for I know not where any 
such sentiment of friendly alliance now exists. Nor is it only 
in the labouring class that improvement of mind and character 
operates with beneficial effect even on industry. In the rich and 
idle classes, increased mental energy, more solid instruction, and 
stronger feelings of conscience, pubhc spirit, or philanthropy, 
would quahfy them to originate and promote the most valuable 
improvements, both in the economical resources of their country, 
and in its institutions and customs. To look no further than the 
most obvious phenomena ; the backwardness of French agriculture 
in the precise points in which benefit might be expected from the 
influence of an educated class, is partly accounted for by the ex- 
clusive devotion of the richer landed proprietors to town interests 
and town pleasures. There is scarcely any possible amelioration 
of human affairs which would not, among its other benefitSj have 



188 BOOK I. CHAPTER XII. § 3 

a favourable operation, direct or indirect, upon tlie productiveness 
of industry. The intensity of devotion to industrial occupations 
would indeed in many cases be moderated by a more liberal and 
genial mental culture, but the labour actually bestowed on those 
occupations would almost always be rendered more effective. 

Before pointing out the principal inferences to be drawn from 
the nature of the two antagonist forces by which the productiveness 
jf agricultural industry is determined, we must observe that what 
we have said of agriculture is true, with little variation, of the other 
occupations which it represents ; of all the arts which extract 
materials from the globe. Mining industry, for example, usually 
yields an increase of produce at a more than proportional increase 
of expense. It does worse, for even its customary annual produce 
requires to be extracted by a greater and greater expenditure of 
labour and capital. As a mine does not reproduce the coal or 
ore taken from it, not only are all mines at last exhausted, but 
even when they as yet show no signs of exhaustion, they must be 
worked at a continually increasing cost ; shafts must be sunk 
deeper, galleries driven farther, greater power applied to keep them 
clear of water ; the produce must be lifted from a greater depth, or 
conveyed a greater distance. The law of diminishing return applies 
therefore to mining, in a still more unqualified sense than to agri- 
culture : but the antagonizing agency, that of improvements in 
production, also appHes in a still greater degree. Mining operations 
are more susceptible of mechanical improvements than agricultural : 
the first great application of the steam-engine was to mining ; and 
there are unlimited possibilities of improvement in the chemical 
processes by which the metals are extracted. There is another 
contingency, of no unfrequent occurrence, which avails to counter- 
Jjalance the progress of all existing mines towards exhaustion : 
this is, the discovery of new ones, equal or superior in richness. 

To resume ; all natural agents which are limited in quantity, 
are not only limited in their ultimate productive power, but, long 
before that power is stretched to the utmost, they yield to any 
additional demands on progressively harder terms. This law may 
however be suspended, or temporarily controlled, by whatever 
adds to the general power of mankind over nature ; and especially 
by any extension of their knowledge, and their consequent command, 
of the properties and powers of natural agents.^ 

^ [See Appendix J. The Law of Diminishing Return.^ 




CHAPTER XIII 

CONSEQUENCES OF THE FOREGOING LAWS 



§ L From the preceding exposition it appears that the limit! 
to the increase of production is two-fold ; from deficiency of capital, | 
or of land. Production comes to a pause, either because the effective 
desire of accumulation is not sufficient to give rise to any further 
increase of capital, or because, however disposed the possessors of 
surplus income may be to save a portion of it, the limited land at the 
disposal of the community does not permit additional capital to be 
employed with such a return as would be an equivalent to them 
for their abstinence. 

In countries where the principle of accumulation is as weak as it 
is in the various nations of Asia ; where people will neither save, nor 
work to obtain the means of saving, unless under the inducement of 
enormously high profits, nor even then if it is necessary to wait a 
considerable time for them ; where either productions remain scanty, 
or drudgery great, because there is neither capital forthcoming 
nor forethought sufficient for the adoption of the contrivances by 
which natural agents are made to do the work of human labour ; 
the desideratum for such a country, economically considered, is an 
increase of industry, and of the effective desire of accumulation. 
The means are, first, a better government : more complete security 
of property ; moderate taxes, and freedom from arbitrary exaction 
under the name of taxes ; a more permanent and more advantageous 
tenure of land, securing to the cultivator as far as possible the undi- 
vided benefits of the industry, skill, and economy he may exert. 
Secondly, improvement of the public inteUigence : the decay of 
usages or superstitions which interfere with the effective employment 
of industry ; and the growth of mental activity, making the people 
alive to new objects of desire. Thirdly, the introduction of foreign 
arts, which raise the returns derivable from additional capital, to a 
rate corresponding to the low strength of the desire of accumulation : 



190 BOOK I. CHAPTER XIII. § 2 

and the importation of foreign capital, wHcli renders the increase of 
production no longer exclusively dependent on the thrift or provi- 
dence of the inhabitants themselves, while it places before them a 
stimulating example, and by instilling new ideas and breaking the 
chains of habit, if not by improving the actual condition of the popu- 
lation, tends to create in them new wants, increased ambition, and 
greater thought for the future. These considerations apply more or 
less to all the Asiatic populations, and to the less civilized and indus- 
trious parts of Europe, as Russia, Turkey, Spain, and Ireland. 

§ 2. But there are other countries, and England is at the head 
of them, in which neither the spirit of industry nor the efiective 
desire of accumulation need any encouragement ; where the people 
will toil hard for a small remuneration, and save much for a small 
profit ; where, though the general thriftiness of the labouring class is 
much below what is desirable, the spirit of accumulation in the more 
prosperous part of the community requires abatement rather than 
increase. In these countries there would never be any deficiency of 
capital, if its increase were never checked or brought to a stand by 
too great a diminution of its returns. It is the tendency of the 
returns to a progressive diminution, which causes the increase of 
production to be often attended with a deterioration in the con- 
dition of the producers ; and this tendency, which would in time 
put an end to increase of production altogether, is a result of the 
necessary and inherent conditions of production from the land. 

In all countries which have passed beyond a rather ^ early stage 
in the progress of agriculture, every increase in the demand for food, 
occasioned by increased population, will always, unless there is a 
simultaneous improvement in production, diminish the share which 
on a fair division would fall to each individual. U An increased pro- 
duction, in defaiilt of unoccupied tracts of fertile land, or of :besh 
improvements tending to cheapen commodities, can never be 
obtained but by increasing the labour in more than the same pro- 
portion. The population must either work harder, or eat less, or 
obtain their usual food by sacrificing a part of their other customary 
comforts. Whenever this necessity is postponed, notwithstanding 
an increase of population,^ it is because the improvements which 
facihtate production continue progressive ; because the contrivances 

1 [In the 6th ed. (1865) " rather " replaced the original " very."] 
- [The quahfying clause " notwithstanding . . population " was inserted 
in the 6th ed. (1865).] 



CONSEQUENCES OF THE FOREGOING LAWS 101 

of mankind for making tkeir labour more efiective keep up an equal 
struggle with nature, and extort fresh resources from her reluctant 
powers as fast as human necessities occupy and engross the old. 

From this, results the important corollary, that the necessity 
of restraining population is not, as many persons beheve, pecuUar 
to a condition of great inequality of property. A greater number 
of people cannot, in any given state^ of civilization, be collectively 
so well provided for as a smaller. The niggardliness of nature, not 
the injustice of society, is the cause of the penalty attached to over- 
populationr) An unjust distribution of wealth does not even aggra- 
vate the evil, but, at most, causes it to be somewhat earlier felt. 
It is in vain to say, that all mouths which the increase of mankind 
calls into existence, bring with them hands. The new mouths 
require as much food as the old ones, and the hands do not produce 
as much. If aU instruments of production were held in joint 
property by the whole people, and the produce divided with perfect 
equaUty among them, and if, in a society thus constituted, industry 
were as energetic and the produce as ample as at present, there would 
be enough to make all the existing population extremely comfortable ; 
but when that population had doubled itself, as, with the existing 
habits of the people, under such an encouragement, it undoubtedly 
would in little more than twenty years, what would then be their con- 
dition ? Unless the arts of production were in the same time 
improved in an almost unexampled degree,^ the inferior soils which 
must be resorted to, and the more laborious and scantily remunera- 
tive cultivation which must be employed on the superior soils, 
to procure food for so much larger a population, w^ould, by an 
insuperable necessity, render every individual in the community 
poorer than before. If the population continued to increase at 
the same rate, a time would soon arrive when no one would have 
more than mere necessaries, and, soon after, a time when no one 
would have a sufficiency of those, and the further increase of popula- 
tion would be arrested by death. _^ 

Whether, at the present or any other time, the produce of 
industry proportionally to the labour employed, is increasing or 
diminishing, and the average condition of the people improving or 
deteriorating, depends upon whether population is advancing faster 
than improvement, or improvement than population. After a 
degree of density has been attained, sufficient to allow the principal 

* [So from the 3rd ed. (1852). The original ran : "so unexampled a degree 
as to double the productive power of labour."] 



102 BOOK I. CHAPTER XIH. § 2 

benefits of combination of labour, all further increase tends in itself 
to miscliief , so far as regards the average condition of the people ; but 
the progress of improvement has a counteracting operation, and 
allows of increased numbers without any deterioration, and even 
consistently with a higher average of comfort. Improvement 
must here be understood in a wide sense, including not only new 
industrial inventions, or an extended use of those already known, 
but improvements in institutions, education, opinions, and human 
affairs generally, provided they tend, as almost all improvements 
do, to give new motives or new facihties to production. If the 
productive powers of the country increase as rapidly as advancing 
numbers caU for an augmentation of produce, it is not necessary to 
obtain that augmentation by the cultivation of soils more sterile than 
the worst already under culture, or by applying additional labour 
to the old soils at a diminished advantage; or at all events this loss 
of power is compensated by the increased efficiency with which, in 
the progress of improvement, labour is employed in manufactures. 
In one way or the other, the increased population is provided for, 
and all are as well off as before. But if the growth of human power 
over nature is suspended or slackened, and population does not 
slacken its increase ; if, with only the existing command over naturai 
agencies, those agencies are called upon for an increased produce ; 
this greater produce will not be afforded to the increased population, 
without either demanding on the average a greater effort from each, 
or on the average reducing each to a smaller ration out of the aggre- 
gate produce. 

As a matter of fact, at some periods the progress of population 
has been the more rapid of the two, at others that of improvement. 
In England during a long interval preceding the French Eevolution, 
population increased slowly ; but the progress of improvement, at 
least in agriculture, would seem to have been still slower, since though 
nothing occurred to lower the value of the precious metals, the price 
of corn rose considerably, and England, from an exporting, became 
an importing country. This evidence, however, is short of conclu- 
sive, inasmuch as the extraordinary number of abundant seasons 
during the first half of the century, not continuing during the last, 
was a cause of increased price in the later period, extrinsic to the 
ordinary progress of society. Whether during the same period 
improvements in manufactures, or diminished cost of imported com- 
modities, made amends for the diminished productiveness of labour 
on the land, is uncertain. But ever since the great mechanical 



CONSEQUENCES OF THE FOREGOING LAWS 193 

inventions of Watt, Arkwriglit, and their contemporaries, the 
return to labour has probably increased as fast as the population ; 
and would have outstripped it, if that very augmentation of return 
had not called forth an additional portion of the inherent power 
of multipHcation in the human species. Ihiring the twenty or 
thirty years last elapsed [1857], so rapid has been the extension of 
improved processes of agriculture, that even the land yields a greater 
produce in proportion to the labour employed ; the average price of 
com had become decidedly lower, even before the repeal of the 
corn laws had so materially Kghtened, for the time being, the pressure 
of population upon production. But though improvement may 
during a certain space of time keep up with, or even surpass, the 
actual increase of population, it assuredly never comes up to the rate 
of increase of which population is capable ; and nothing could have 
prevented a general deterioration in the condition of the human 
race, were it not that population has in fact been restrained. Had 
it been restrained still more, and the same improvements taken place, 
there would have been a larger dividend than there now is, for the 
nation or the species at large. The new ground wrung from nature 
by the improvements would not have been all used up in the support 
of mere numbers. Though the gross produce would not have been 
so great, there would have been a greater produce per head of the 
population. 

§ 3. When the growth of numbers outstrips the progress of 
improvement, and a country is driven to obtain the means of sub- 
sistence on terms more and more unfavourable, by the inability 
of its land to meet additional demands except on more onerous 
conditions ; there are two expedients by which it may hope to 
mitigate that disagreeable necessity, even though no change should 
take place in the habits of the people with respect to their rate 
of increase. One of these expedients is the importation of food 
from abroad. The other is emigration. 

The admission of cheaper food from a foreign country is equiva- 
lent to an agTicultural invention by which food could be raised 
at a similarly diminished cost at home. It equally increases the 
productive power of labour. The return was before, so much food 
for so much labour employed in the growth of food : the return 
is now, a greater quantity of food, for the same labour employed in 
producing cottons or hardware or some other commodity, to be given 
in exchange for food. The one improvement^ hke the other, throws 

H 



194 J3UUK 1. (JMAriJiK Alii. & 3 

back tlie decKne of tlie productive power of labour by a certain 
distance : but in tbe one case as in the other, it immediately resumes 
its course ; the tide which has receded, instantly begins to re-advance. 
It might seem, indeed, that when a country draws its supply of food 
from so wide a surface as the whole habitable globe, so Httle impres- 
sion can be produced on that great expanse by any increase of 
mouths in one small corner of it, that the inhabitants of the country 
may double and treble their numbers, without feeling the effect 
in any increased tension of the springs of production, or any en- 
hancement of the price of food throughout the world. But in this 
calculation several things are overlooked. 

In the first place, the foreign regions from which corn can be 
imported do not comprise the whole globe, but those parts of it 
principally which are in the immediate neighbourhood of coasts or 
navigable rivers. The coast is the part of most countries which is 
earhest and most thickly peopled, and has seldom any food to spare. 
The chief source of supply, therefore, is the strip of country along 
the banks of some navigable river, as the Nile, the Vistula, or the 
Mississippi ; and of such there is not, in the productive regions of the 
earth, so great a multitude as to suffice during an indefinite time for a 
rapidly growing demand, without an increasing strain on the pro- 
ductive powers of the soil. To obtain auxiliary supphes of corn 
from the interior in any abundance, is, in the existing state of the 
communications [1871], in most cases impracticable. By improved 
roads, and by canals and railways, the obstacle will eventually be 
so reduced as not to be insuperable : but this is a slow progress ; in all 
the food-exporting countries except America, a very slow progress ; 
and one which cannot keep pace with population, unless the increase 
of the last is very effectually restrained. 

In the next place, even if the supply were drawn from the 
whole instead of a small part of the surface of the exporting countries, 
the quantity of food would still be Umited, which could be obtained 
from them without an increase of the proportional cost. The coun- 
tries which export food may be divided into two classes ; those in 
which the effective desire of accumulation is strong, and those in 
which it is weak. In Austraha and the United States of America, 
the effective desire of accumulation is strong ; capital increases 
fast, and the production of food might be very rapidly extended. 
But in such countries population also increases with extraordinary 
rapidity. Their agriculture has to provide for their own expanding 
numbers, as well as for those of the importing countries. They 



CONSEQUENCES OF THE FOREGOING LAWS 195 

must, therefore, from the nature of the case, be rapidly driven 
if not to less fertile, at least what is equivalent, to remoter and less 
accessible lands, and to modes of cultivation Kke those of old coun- 
tries, less productive in proportion to the labour and expense. 

But the countries which have at the same time cheap food and 
great industrial prosperity are few, being only those in which the 
arts of civilized Hfe have been transferred full-grown to a rich and 
uncultivated soil. Among old countries, those which are able to 
export food, are able only because their industry is in a very back- 
ward state ; because capital, and hence population, have never 
increased sufficiently to make food rise to a higher price. Such 
countries are [1848] Eussia, Poland, and the plains of the Danube. 
In those regions the effective desire of accumulation is weak, the 
arts of production most imperfect, capital scanty, and its increase, 
especially from domestic sources, slow. When an increased demand 
arose for food to be exported to other countries, it would only be 
very gradually that food could be produced to meet it. The capital 
needed could not be obtained by transfer from other employments, 
for such do not exist. The cottons or hardware which would be 
received from England in exchange for corn, the Russians and Poles 
do not now produce in the country : they go without them. Some- 
thing might in time be expected from the increased exertions to 
which producers would be stimulated by the market opened for 
their produce ; but to such increase of exertion, the habits of coun- 
tries whose agricultural population consists of serfs, or of peasants 
who have but just emerged from a servile condition, are the reverse of 
favourable, and even in this age of movement these habits do not 
rapidly change. If a greater outlay of capital is reUed on as the 
source from which the produce is to be increased, the means must 
either be obtained by the slow process of saving, under the impulse 
given by new commodities and more extended intercourse (and in 
that case the population would most Hkely increase as fast), or 
must be brought in from foreign countries. If England is to obtain 
a rapidly increasing supply of corn from Russia or Poland, Enghsh 
capital must go there to produce it. This, however, is attended 
with so many difficulties, as are equivalent to great positive dis- 
advantages. It is opposed by differences of language, differences 
of manners, and a thousand obstacles arising from the institutions 
and social relations of the country ; and after all it would in- 
evitably so stimulate population on the spot, that nearly all the 
increase of food produced by its means would probably be 



196 BOOK I. CHAPTER XIII. § 3 

consumed witliout leaving the country : so that, if it were not the 
almost only mode of introducing foreign arts and ideas, and giving 
an effectual spur tb the backward civiUzation of those countries, 
little reliance could be placed on it for increasing the exports, and 
supplying other countries with a progressive and indefinite increase 
of food. But to improve the civihzation of a country is a slow 
process, and gives time for so great an increase of population both 
in the country itself, and in those supplied from it, that its effect in 
keeping down the price of food against the increase of demand is not 
hkely to be more decisive on the scale of all Europe, than on the 
smaller one of a particular nation. 

The law, therefore, of diminishing return to industry, whenever 
population makes a more rapid progress than improvement, is not 
solely applicable to countries which are fed from their own soil, but 
in substance applies quite as much to those which are willing to draw 
their food from any accessible quarter that can afford it cheapest. 
A sudden and great cheapening of food, indeed, in whatever manner 
produced, would, like any other sudden improvement in the arts of 
Hfe, throw the natural tendency of affairs a stage or two further back, 
though without altering its course.^ There is one contingency 
connected with freedom of importation, which may yet produce 
temporary effects greater than were ever contemplated either by the 
bitterest enemies or the most ardent adherents of free-trade in food. 
Maize, or Indian corn, is a product capable of being supphed in quan- 
tity sufficient to feed the whole country, at a cost, allowing for 
difference of nutritive quality, cheaper even than the potato. If 
maize should ever substitute itself for wheat as the staple food of the 
poor, the productive power of labour in obtaining food would be so 

"^ [This one sentence replaced in the 3rd ed. (1852) the following passage of 
the original text : "If, indeed, the release of the corn trade from restriction had 
produced, or should still produce, a sudden cheapening of food, this, like any 
other sudden improvement in the arts of life, would throw the natural tendency 
of affairs a stage or two further back, but without at all altering its course. 
There would be more for everybody in the first instance ; but this more would 
begin immediately and continue always to grow less, so long as population 
went on increasing, unaccompanied by other events of a countervailing 
tendency. 

" Whether the repeal of the corn laws is likely, even temporarily, to give any 
considerable increase of margin for population to fill up, it would be premature 
as yet to attempt to decide. All the elements of the question have been thrown 
into temporary disorder by the consequences of bad harvests and of the potatoe 
failure. But as far as can be foreseen, there seems little reason to expect an 
importation of the customary articles of food either so great in itself, or capable 
of such rapid increase, as to interfere much with the operation of the general 
law."] 



T0TTSEt^TTETTCE5^IBT:HETT)IlEaDING LAWS 197 

enormously increased, and the expense of maintaining a family so 
diminished, that it woidd require perhaps some generations for 
population, even if it started forward at an American pace, to over- 
take this great accession to the facilities of its support. 

§ 4. Besides the importation of corn, there is another resource 
which can be invoked by a nation whose increasing numbers press 
hard, not against their capital, but against the productive capacity 
of their land : I mean Emigration, especially in the form of Coloniza- 
tion. Of this remedy the efficacy as far as it goes is real, since it 
consists in seeking elsewhere those unoccupied tracts of fertile land, 
which if they existed at home would enable the demand of an increas- 
ing population to be met without any falling ofi in the productive- 
ness of labour. Accordingly, when the region to be colonized is 
near at hand, and the habits and tastes of the people sufficiently 
migratory, this remedy is completely effectual. The migration 
from the older parts of the American Confederation to the new 
territories, which is to all intents and purposes colonization, is what 
enables population to go on unchecked throughout the Union without 
having yet diminished the return to industry, or increased the diffi- 
culty of earning a subsistence. If AustraUa or the interior of Canada 
were as near to Great Britain as Wisconsin and Iowa to New York ; 
if the superfluous people could remove to it without crossing the sea, 
and were of as adventurous and restless a character, and as little 
addicted to staying at home, as their kinsfolk of New England, those 
unpeopled continents would render the same service to the United 
Kingdom which the old states of America derive from the new. But, 
these things being as they are — though a judiciously conducted 
emigration is a most important resource for suddenly lightening the 
pressure of population by a single effort — and though in such an 
extraordinary case as that of Ireland under the threefold operation of 
the potato failure, the poor law, and the general turning- out of 
tenantry throughout the country, spontaneous emigration may at 
a particular crisis remove greater multitudes than it was ever pro- 
posed to remove at once by any national scheme ^ ; it still remains 
to be shown by experience ^ whether a permanent stream of emigra- 
tion can be kept up, sufficient to take off, as in America, all that 
portion of the annual increase (when proceeding at its greatest 

^ [The reference to Ireland (" and though . . . scheme ") was inserted in 
the 3rd ed. (1852).] 

2 [So from the 6th ed. (1865). The original ran : " There is no probability 
that even under the most enlightened arrangements a permanent stream, &c."] 



198 BOOK I. CHAFIER Xlll. ^ i 

rapidity) whicli, being in excess of tlie progress made during the same 
short period in the arts of life, tends to render living more difficult 
for every averagely-situated individual in the community. And 
unless this can be done, emigration cannot, even in an economical 
point of view, dispense with the necessity of checks to population. 
Further than this we have not to speak of it in this place. The 
general subject of colonization as a practical question, its importance 
to old countries, and the principles on which it should be conducted, 
will be discussed at some length in a subsequent portion of this 
treatise. 



BOOK II 
DISTHIBUTION 

CHAPTER I 

OF PEOPERTY 

§ 1. The principles whicli have been set forth in the first part of 
this treatise, are, in certain respects, strongly distinguished from 
those on the consideration of which we are now about to enter. 

I The l aws an d conditions of the Production of wealth partake of the 
chaFacter of ~pT^^caT truths. | There is nothing optional or arbitrary 
in then^^ Whatever mankind produce, must be produced in the 
modes, and under the conditions, imposed by the constitution of 
external things, and by the inherent properties of their own bodily 
and mental structure. Whether they like it or not, their produc- 
tions will be limited by the amount of their previous accumulation, 
and, that being given, it will be proportional to their energy, their 
skill, the perfection of their machinery, and their judicious use of the 
advantages of combined labour. Whether they hke it or not, a 
double quantity of labour will not raise, on the same land, a double 
quantity of food, unless some improvement takes place in the pro- 
cesses of cultivation. Whether they like it or not, the unproductive 
expenditure of individuals will pro tanto tend to impoverish the com- 
munity, and only their productive expenditure will enrich it. The 
opinions, or the wishes, which may exist on these different matters, 
do not control the things themselves. We cannot, indeed, foresee 
to what extent the modes of production may be altered, or the 
productiveness of labour increased, by future extensions of our 
knowledge of the laws of nature, suggesting new processes of industry 
of which we have at present no conception. But howsoever we 



I\ 



200 BOOK II. CHAPTER I. § 1 

may succeed in making for ourselves more space within the limits 
set by the constitution of things, we know that there must be limits. 
We cannot alter the ultimate properties either of matter or mind, 
but can only employ those properties more or less successfully, to 
bring about the events in which we are interested.^ 

It is not so with the Distribution of wealth. Th at is a matter 
o f human in stitution solely. The things once there, mankind, 
individually or collectively, can do with them as they like. They 
can place them at the disposal of whomsoever they please, and on 
whatever terms. I| Further, in the social state, in every state except 
total sohtude, any disposal whatever of them can only take place 
by the consent of societyj^ljor rather of those who dispose of its 
active force. Even what a person has produced by his individual 
toil, unaided by any one, he cannot keep, unless by the permission 
of society. Not only can society take it from him, but individuals 
could and would take it from him, if society only remained passive ; 
if it did not either interfere en masse, or employ and pay people for 
the purpose of preventing him from being disturbed in the possession. 
The distribution of wealth, therefore, depends on the laws and cus- 
toms of society. The riiles by which it is determined are what the 
opinions and feehngs of the ruHng portion of the community make 
them, and are very different in different ages and countries ; and 
might be still more different, if mankind so chose. 

The opinions and feehngs of mankind, doubtless, are not a matter 
of chance. They are consequences of the fundamental laws of human 
nature, combined with the existing state of knowledge and experi- 
ence, and the existing condition of social institutions and intel- 
lectual and moral culture. But the laws of the generation of human 
opinions are not within our present subject. They are part 
of the general theory of human progress, a far larger and more 
difficult subject of inquiry than political economy. We have here 
to consider, not the causes, but the consequences, of the rules accord- 
ing to which wealth may be distributed. Those, at least, are as 
little arbitrary, and have as much the character of physical laws, 
as the laws of production. Human beings can control their own 

1 [So since the 3rd ed. (1852). The original ran : " But howsoever . . . 
things, those limits exist ; there are ultimate laws, which we did not make, 
which we cannot alter, and to which we can only conform."] 

2 [The concluding words of this sentence were added in the 3rd ed., and 
•' general " was deleted before " consent." In the next sentence the keeping of 
property was made to depend on " the permission " and not on " the will " of 
society.] 



PROPERTY 201 

acts, but not the consequences of their acts either to themselves or 
to others. i| Society can subject the distribution of wealth to whatever 
rules it thinks best|: but what practical results will flow from the 
operation of those rules must be discovered, like any other physical 
or mental truths, by observation and reasoning. 

We proceed, then, to the consideration of the different modes of I 
distributing the produce of land and labour, which have been adopted 1 
in practice, or may be conceived in theory. Among these, our atten- 
tion is first claimed by that primary and fundamental institution, 
on which, unless in some exceptional and very Hmited cases, the 
economical arrangements of society have always rested, though in 
its secondary features it has varied, and is hable to vary. I mean, 
of course, the institution of individual property. 

§ 2. Private property, as an institution, did not owe its origin 
to any of those considerations of utihty, which plead for the mainten- 
ance of it when estabhshed. Enough is known of rude ages, both 
from history and from analogous states of society in our own time, to 
show that tribunals (which always precede laws) were originally 
estabhshed, not to determine rights, but to repress violence and 
terminate quarrels. With this object chiefly in view, they naturally 
enough gave legal effect to first occupancy, by treating as the 
aggressor the person who first commenced violence, by turning, 
or attempting to turn, another out of possession. The preservation 
of the peace, which was the original object of civil government, 
was thus attained : while by confirming, to those who already 
possessed it, even what was not the fruit of personal exertion, a 
guarantee was incidentally given to them and others that they 
would be protected in what was so. 

In considering the institution of property as a question in social 
philosophy, we must leave out of consideration its actual origin in 
any of the existing nations of Europe. We may suppose a com- 
munity unhampered by any previous possession ; a body of colonists, 
occupying for the first time an uninhabited country ; bringing nothing 
with them but what belonged to them in common, and having a 
clear field for the adoption of the institutions and pohty which they 
judged most expedient ; required, therefore, to choose whether they 
would conduct the work of production on the principle of individual 
property, or on some system of common ownership and collective 
agency. 
u If private property were adopted, we must presume that it would 



202 BOOK II. CHAPTER I. § 2 

be accompanied by none of the initial inequalities and injustices 
which obstruct the beneficial operation of the principle in old 
societies. Every full grown man or woman, we must suppose, 
would be secured in the unfettered use and disposal of his or her 
bodily and mental faculties ; . and the instrum ents of production, 
the la nd and tools, w ould bejdJvjHeid fair jj among them, so that all 
mlgEt start, in respect^ to_ outwaTd_jappHances,_on equal terms. 
IFls~possiBIe also to conceive that in this original apportionment, 
compensation might be made for the injuries of nature, and the 
balance redressed by assigning to the less robust members of the 
community advantages in the distribution, sufficient to put them 
on a par with the rest. Eutth e division, _o nc-e made^ would not 
agai n be in te rfered with : individuals jw ould Jbfi ,lef tu to their own^ 
exertions and to the ordinary chanceSjJor making an advantageous 
use'"oF" what' was assign edjojbhem^ If individual property, on the 
contrary, were excluded, the plan which must be adopted would be 
to hold the land and all instruments of production as the joint 
property of the community, and to carry on the operations of 
industry on the common account. The direction of the labour of 
the community would devolve upon a magistrate or magistrates, 
whom we may suppose elected by the suftrages of the community, 
and whom we must assume to be voluntarily obeyed by them. The 
division of the produce would in like manner be a public act. The 
principle might either be that of complete equality, or of apportion- 
ment to the necessities or deserts of individuals, in whatever manner 
might be conformable to the ideas of justice or poHcy prevailing 
in the community. 

Examples of such associations, on a small scale, are the monastic 
orders, the Moravians, the followers of Eapp, and others : and from 
the hopes 1 which they hold out of relief from the miseries and 
iniquities of a state of much inequality of wealth, schemes for a 
larger application of the same idea have reappeared and become 
popular at all periods of active speculation on the first principles of 
society. In an age Hke the present [1848], when a general recon- 
sideration of all first principles is felt to be inevitable, and when more 
than at any former period of history the suffering portions of the 
community have a voice in the discussion, it was impossible but 
that ideas of this nature should spread far and wide.^ The late 

1 [So since the 3rd ed. (1852). In the original, *' the plausible remedy."] 

2 [Here followed in the original text the following passage : " Owenism, or 
Socialism, in this country, and Communism on the continent, are the most 
prevaihng forms of the doctrine. These suppose a democratic government of 



PROPERTY 203 

revolutions in Europe have thrown up a great amount of speculation 
of this character, and an unusual share of attention has consequently 
been drawn to the various forms which these ideas have assumed : 
nor is this attention hkely to diminish, but on the contrary, to 
increase more and more. 

The assailants of the principle of individual property may be 
divided into two classes : those whose scheme impUes absolute 
equality in the distribution of the physical means of life and enjoy- 
ment, and those who admit inequahty, but grounded on some 
principle, or supposed principle, of justice or general expediency, and 
not, like so many of the existing social inequaUties, dependent on 
accident alone. At the head of the first class, as the earliest of 
those belonging to the present generation, must be placed Mr. Owen 
and his followers. M. Louis Blanc and M. Cabet have more recently 
become conspicuous as apostles of similar doctrines (though the 
former advocates equality of distribution only as a transition to a 
still higher standard of justice, that all should work according to 
their capacity, and receive according to their wants). The charac- 
teristic name for this economical system is Communism, a word 
of continental origin, only of late introduced into this country. 
The word Socialism, which originated among the English Communists, 
and was assumed by them as a name to designate their own doc- 
trine, is now [1849], on the Continent, employed in a larger sense ; 
not necessarily implying Communism, or the entire abolition of 
private property, but appUed to any system which requires that the 
land and the instruments of production should be the property, not 

the industry and funds of society, and an equal division of the fruits. In the 
more elaborate and refined form of the same scheme, which obtained a tempo- 
rary celebrity under the name of St. Simonism, the administering authority 
was supposed to be a monarchy or aristocracy, not of birth but of capacity ; 
the remuneration of each member of the community being by salary, propor- 
tioned to the importance of the services supposed to be rendered by each to the 
-general body." 

This was replaced in the 2nd ed. (1849^ by the present reference to " the 
late revolutions in Europe," and by the following paragraph, dividing " the 
assailants of the principle of individual property " into two classes. The present 
form, however, of the clause beginning " Nor is this attention " dates from the 
3rd ed. (1852). In the 2nd it ran : " This attention is not likely to diminish ; 
attacks on the institution of property being, in the existing state of human 
intellect, a natural expression of the discontent of all those classes on whom, 
in whatever manner, the present constitution of society bears hardly : and it 
is a safe prediction that, unless the progress of the human mind can be checked, 
such speculations will never cease, until the laws of property are freed from 
whatever portion of injustice they contain, and until whatever is well grounded 
in the opinions and legitimate in the aims of its assailants is adopted into th? 
framework of society."] 



204 ■ BOOK 11. CHAPTER 1. § 3 

of individuals, but of communities or associations, or of the govern- 
ment. Among such systems, the two of highest intellectual pre- 
tension are those which, from the names of their real or reputed 
authors, have been called St. Simonism and Fourierism ; the former 
defunct as a system, but which during the few years of its pubHc 
promulgation sowed the seeds of nearly all the Sociahst tendencies 
which have since spread so widely in France : the second, still [1865] 
flourishing in the number, talent, and zeal of its adherents. 

§ 3.1 Whatever may be the merits or defects of these various | 
schemes, they cannot be truly said to be impracticable.! No reason- J 
able person can doubt that a village community, composed of a 
few thousand inhabitants, cultivating in joint ownership the same 
extent of land which at present feeds that number of people, and 
producing by combined labour and the most improved processes 
the manufactured articles which they required, could raise an 
amount of productions sufficient to maintain them in comfort ; 
and would find the means of obtaining, and if need be, exacting, 
the quantity of labour necessary for this purpose, from every 
member of the association who was capable of work. 

The objection ordinarily made to a system of community of pro- 

j perty and equal distribution of the produce, that each person would 

\ be incessantly occupied in evading his fair share of the work, points, 

I undoubtedly, to a real difficulty. But those who urge this objection 

i forget to how great an extent the same difficulty exists under the 

system on which nine-tenths of the business of society is now 

conducted. The objection supposes, / that honest and efficient 

labour is only to be had from those who are themselves individually 

to reap the benefit of their own exertions. But how small a part 

of all the labour performed in England, from the lowest-paid to the 

highest, is done by persons working for their own benefit. From 

the Irish reaper or hodman to the chief justice or the minister of state, 

nearly all the work of society is remunerated by day wages or fixed 

salaries. A factory operative has less personal interest in his work 

than a member of a Communist association, since he is not, like him, 

[The whole of this section was rewritten in the 3rd ed. (1852), with the 
aid of some passages from the 2nd ed. (1849), for the reason stated ia 
I the Preface to the 3rd edition The present first paragraph of § 4 was 
J^ 8.dded, and the next paragraph modified by the omission of the assertion that 
I the arguments of § 3 while " not applicable to St. Simonism " were, to his mind, 
f " conclusive against Communism." For the original text of § 3 see Appendix 
\J|. MilVs earlier and later writings on Socialism.'] 



PROPERTY /--' 205 

working for a partnership of which he is himself ; a member 
It will no doubt be said, that though the labourers themselves have 
not, in most cases, a personal interest in their work, they are watched 
and superintended, and their labour directed, and the mental part 
of the labour performed, by persons who have. Even this, however, 
is far from being universally the fact. In all pubHc, and many 
of the largest and most successful private undertakings, not only 
the labours of detail but the control and superintendence are 
entrusted to salaried officers. And though the " master's eye," 
when the master is vigilant and intelligent, is of proverbial value, 
it must be remembered that in a Socialist farm or manufactory, 
each labourer would be under the eye not of one master, but of the 
whole community. In the extreme case of obstinate perseverance 
in not performing the due share of work, the community would 
have the same resources which society now has for compelling 
conformity to the necessary conditions of the association. Dismissal, 
the only remedy at present, is no remedy when any other labourer 
who may be engaged does no better than his predecessor : the 
power of dismissal only enables an employer to obtain from his 
workmen the customary amount of labour, but that customary 
labour may be of any degree of inefficiency. Even the labourer who 
loses his employment by idleness or negligence, has nothing worse 
to sufier, in the most unfavourable case, than the disciphne of a 
workhouse, and if the desire to avoid this be a sufficient motive in 
the one system, it would be sufficient in the other. I am not 
undervaluing the strength of the incitement given to labour when 
the whole or a large share of the benefit of extra exertion belongs 
to the labourer. But under the present system of industry this 
incitement, in the great majority of cases, does not exist. If 
Communistic labour might be less vigorous than that of a peasant 
proprietor, or a workman labouring on his own account, it would 
probably be more energetic than that of a labourer for hire, who 
has no personal interest in the matter at all. The neglect by the 
uneducated classes of labourers for hire of the duties which they 
engage to perform, is in the present state of society most flagrant. 
Now it is an admitted condition of the Communist scheme that all 
shall be educated : and this being supposed, the duties of the 
members of the association would doubtless be as dihgently per- 
formed as those of the generality of salaried officers in the middle 
or higher classes ; who are not supposed to be necessarily unfaithful 
to their trust, because so long as they are not dismissed, their pay 



206 BOOK II. CHAPTER I. § 3 

is the same in however lax a manner their duty is fulfilled. Un- 
doubtedly, as a general rule, remuneration by fixed salaries does 
not in any class of functionaries produce the maximum of zeal : 
and this is as much as can be reasonably alleged against Communistic 
labour. 

That even this inferiority would necessarily exist, is by no means 
so certain as is assumed by those who are Httle used to carry 
their minds beyond the state of things with which they are familiar. 
Mankind are capable of a far greater amount of pubUc spirit than 
the present age is accustomed to suppose possible. History bears 
witness to the success with which large bodies of human beings 
may be trained to feel the pubHc interest their own. And no soil 
could be more favourable to the growth of such a feehng, than a 
Communist association, since all the ambition, and the bodily 
and mental activity, which are now exerted in the pursuit of separate 
and self -regarding interests, would require another sphere of employ- 
ment, and would naturally find it in the pursuit of the general 
benefit of the community. The same cause, so often assigned in 
explanation of the devotion of the Cathohc priest or monjc to the 
interest of his order — that he lias no interest "apart from it — would, 
under Communism, attach the citizen to the community. And 
independently of the public motive, every member of the association 
would be amenable to the most universal, and one of the strongest, 
of personal motives, that of pubhc opinion. The force of this 
motive in deterring from any act or omission positively reproved 
by the community, no one is likely to deny ; but the power also 
of emulation, in exciting to the most strenuous exertions for the 
sake of the approbation and admiration of others, is borne witness 
to by experience in every situation in which human beings publicly 
compete with one another, even if it be in things frivolous, or from 
which the public derive no benefit. A contest, who can do most for 
the common good, is not the kind of competition which Socialists 
repudiate. To what extent, therefore, the energy of labour would 
be diminished by Communism, or whether in the long run it would 
be diminished at all, must be considered for the present [1852] 
an undecided question. 

Another of the objections to Communism is similar to that 
so often urged against poor laws : that if every member of the 
community were assured of subsistence for himself and any 
number of children, on the sole condition of willingness to work, 
prudential restraint on the multiplication of mankind would be 



COMMUNISM 207 

a 6 an end, and population would start forward at a rate which 
would reduce the community, through successive stages of increasing 
discomfort, to actual starvation. There would certainly be much 
ground for this apprehension if Communism provided no motives 
to restraint, equivalent to those which it would take away. But 
Communism is precisely the state of things in which opinion might 
be expected to declare itself with greatest intensity against this 
kind of selfish intemperance. Any augmentation of numbers 
which diminished the comfort or increased the toil of the mass, 
would then cause (which now it does not) immediate and unmis- 
takeable inconvenience to every individual in the association ; 
inconvenience which could not then be imputed to the avarice 
of employers, or the unjust privileges of the rich. In such altered 
circumstances opinion could not fail to reprobate, and if reprobation 
did not suffice, to repress by penalties of some description, this or 
any other culpable self-indulgence at the expense of the community. 
The Communistic scheme, instead of being pecuKarly open to the 
objection drawn from danger of over-population, has the recom- 
mendation of tending in an especial degree to the prevention of that 
evil. 

A more real difficulty is that of fairly apportioning the labour ' 
of the community among its members. There are many kinds 
of work, and by what standard are they to be measured one against 
another ? Who is to judge how much cotton spinning, or dis- 
tributing goods from the stores, or bricklaying, or chimney sweeping, 
is equivalent to so much ploughing ? The difficulty of making 
the adjustment between different qualities of labour is so strongly 
felt by Communist writers, that they have usually thought it neces- 
sary to provide that all should work by turns at every description of 
useful labour : an arrangement which, by putting an end to the 
division of employments, would sacrifice so much of the advantage 
of co-operative production as greatly to diminish the productiveness 
of labour. Besides, even in the same kind of work, nominal 
equahty of labour would be so great a real inequahty, that the 
feehng of justice would revolt against its being enforced. All persons 
are not equally fit for all labour ; and the same quantity of labour 
is an unequal burthen on the weak and the strong, the hardy and 
the deUcate, the quick and the slow, the dull and the intelhgent. 

But these difficulties, though real, are not necessarily insuperable 
The apportionment of work to the strength and capacities of in 
dividuals, the mitigation of a general rule to provide for cases in 



[e.l 



208 BOOK II. CHAPTER I. § 3 

whicli it would operate liarsUy, are not problems to which human 
intelligenee, guided by a sense of justice, would be inadequate. 
And the worst and most unjust arrangement which could be made 
of these points, under a system aiming at equahty, would be so 
far short of the inequahty and injustice with which labour (not to 
speak of remuneration) is now apportioned, as to be scarcely worth 
counting in the comparison. We must remember too, that Com- 
munism, as a system of society, exists only in idea ; that its 
difficulties, at present, are much better understood than its resources ; 
and that the intellect of mankind is only beginning to contrive 
the means of organizing it in detail, so as to overcome the one 
and derive the greatest advantage from the other.i 

If, therefore, the choice were to be made between Communism' 
with aU its chances, and the present [1852] state of society with 
all its sufferings and injustices ; if the institution of private property 
necessarily carried with it as a consequence, that the produce of 
labour should be apportioned as we now see it, almost in an inverse 
ratio to the labour — the largest portions to those who have never 
worked at all, the next largest to those whose work is almost nominal, 
and so in a descending scale, the remuneration dwindling as the 
work grows harder and more disagreeable, imtil the most fatiguing 
and exhausting bodily labour cannot count with certainty on being 
able to earn even the necessaries of life ; if this or Communism 
were the alternative, aU the difficulties, great or small, of Communism 
would be but as dust in the balance. But to make the comparison 
applicable, we must compare Communism at its best, with the 
regime of individual property, not as it is, but as it might be made. 
The principle of private property has never yet had a fair trial 
in any country ; and less so, perhaps, in this country than in some 
others. The social arrangements of modern Europe commenced 
from a distribution of property which was the result, not of just 
partition, or acquisition by industry, but of conquest and violence : 
and notwithstanding what industry has been doing for many 
centuries to modify the work of force, the system stiU retains many 
and large traces of its origin. The laws of property have never yet 
conformed to the principles on which the justification of private 
property rests. They have made property of things which never 
ought to be property, and absolute property where only a qualified 

^ [The last sentence of this paragraph (" The impossibility of foreseeing and 
prescribing the exact mode in which its difficulties should be dealt with, does not 
prove that it may not be the best and the ultimate form of human society ") 
was omitted in the 4th ed. (1857).] 



COMMUNISM 209 

property ought to exist. They have not held the balance fairly 
between human beings, but have heaped impediments upon 
some, to give advantage to others ; they have purposely fostered 
inequahties, and prevented all from starting fair in the race. That 
all should indeed start on perfectly equal terms is inconsistent with 
any law of private property : but if as much pains as has been 
taken to aggravate the inequality of chances arising from the natural 
working of the principle, had been taken to temper that inequality 
by every means not subversive of the principle itself ; if the tendency 
of legislation had been to favour the diffusion, instead of the con- 
centration of wealth — to encourage the subdivision of the large 
masses, instead of striving to keep them together ; the principle of 
individual property would have been found to have no necessary 
connexion with the physical and social evils which almost all SociaUst 
writers assume to be inseparable from it. 

Private property, in every defence made of it, is supposed to 
mean the guarantee to individuals of the fruits of their own labour 
and abstinence. The guarantee to them of the fruits of the labour 
and abstinence of others, transmitted to them without any merit 
or exertion of their own, is not of the essence of the institution, 
but a mere incidental consequence which, when it reaches a certain 
height, does not promote, but conflicts with, the ends which render 
private property legitimate. To judge of the final destination of 
the institution of property, we must suppose everything rectified 
which causes the institution to work in a manner opposed to that 
equitable principle, of proportion bet ween remuneration and exertion, 
on which in every vindication of it that will bear the light it is- 
assumed to be grounded. We must also suppose two conditions 
realized, without which neither Communism nor any other laws or 
institutions could make the condition of the mass of mankind 
other than degraded and miserable. One of these conditions is 
universal education ; the other, a due limitation of the numbers 
of the community. With these there could be no poverty, even 
under the present social institutions : and these being supposed, 
the question of Socialism is not, as generally stated by Socialists, 
a question of flying to the sole refuge against the evils which now 
bear down humanity ; but a mere question of comparative advan- 
tages, which futurity must determine. We are too ignorant either 
of what individual agency in its best form, or Socialism in its best 
form, can accompHsh, to be qualified to decide which of the two 
will be the ultimate form of human society. 



210 BOOK II. CHAPTER I. § 3 

If a conjecture may be hazarded, the decision will probably 
depend mainly on one consideration, viz. wbicb of the two systems 
is consistent with the greatest amount of human Uberty and spon- 
taneity. After the means of subsistence are assured, the next in 
strength of the personal wants of human beings is Hberty ; and 
(unlike the physical wants, which as civilization advances become 
more moderate and more amenable to control) it increases instead 
of diminishing in intensity as the intelligence and the moral faculties 
are more developed. The perfection both of social arrangements 
and of practical moraUty would be, to secure to all persons complete 
independence and freedom of action, subject to no restriction 
but that of not doing injury to others : and the education which 
taught or the social institutions which required them to exchange 
the control of their own actions for any amount of comfort or 
affluence, or to renounce Uberty for the sake of equality, would 
deprive them of one of the most elevated characteristics of human 
nature. It remains to be discovered how far the preservation 
of this characteristic would be found compatible with the Com- 
munistic organization of society. No doubt this, like all the other 
objections to the Socialist schemes, is vastly exaggerated. The 
members of the association need not be required to hve together 
more than they do now, nor need they be controlled in the disposal 
of their individual share of the produce, and of the probably large 
amount of leisure which, if they Hmited their production to things 
really worth producing, they would possess. Individuals need 
not be chained to an occupation, or to a particular locaUty. The 
restraints of Communism would be freedom in comparison with the 
present condition of the majority of the human race. The generality 
of labourers in this and most other countries have as little choice 
of occupation or freedom of locomotion, are practically as dependent 
on fixed rules and on the will of others, as they could be on any 
system short of actual slavery ; to say nothing of the entire domestic 
subjection of one half the species, to which it is the signal honour 
I of Owenism and most other forms of Socialism that they assign 
' equal rights, in all respects, with those of the hitherto dominant sex. 
But it is not by comparison with the present bad state of society that 
the claims of Communism can be estimated ; nor is it sufficient that 
it should promise greater personal and mental freedom than is 
now enjoyed by those who have not enough of either to deserve 
the name. The question is, whether there would be any asylum 
left for individuality of character ; whether public opinion would 



COMMUNISM 211 

not be a tyrannical yoke ; whether the absolute dependence of 
each on all, and surveillance of each by all, would not grind all 
down into a tame uniformity of thoughts, feehngs, and actions. 
This is already one of the glaring evils of the existing state of society, 
notwithstanding a much greater diversity of education and pursuits, 
and a much less absolute dependence of the individual on the mass, 
than would exist in the Communistic regime. No society in which 
eccentricity is a matter of reproach can be in a wholesome state. 
It is yet to be ascertained whether the Communistic scheme would 
be consistent with that multiform development of human nature, 
those manifold unUkenesses, that diversity of tastes and talents, 
and variety of intellectual points of view, which not only form a 
great part of the interest of human life, but by bringing intellects 
into stimulating collision, and by presenting to each innumerable 
notions that he would not have conceived of himself, are the main- 
spring of mental and moral progression. 

§ 4. I have thus far confined my observations to the Com- 
munistic doctrine, which forms the extreme hmit of Sociahsm ; 
according to which not only the instruments of production, the 
land and capital, are the joint property of the community, but 
the produce is divided and the labour apportioned, as far as possible, 
equally. The objections, whether well or ill grounded, to which 
Sociahsm is Hable, apply to this form of it in their greatest force. 
The other varieties of Sociahsm mainly differ from Communism in 
not relying solely on what M. Louis Blanc calls the point of honour 
of industry, but retaining more or less of the incentives to labour 
derived from private pecuniary interest. Thus it is already a modi- 
fication of the strict theory of Communism when the principle is 
professed of proportioning remuneration to labour. The attempts 
which have been made in France to carry Sociahsm into practical 
effect, by associations of workmen manufacturing on their own 
account,! mostly began by sharing the remuneration equally, 
without regard to the quantity of work done by the individual : 
but in almost every case this plan was after a short time abandoned, 
and recourse was had to working by the piece. The original prin- 
ciple appeals to a higher standard of justice, and is adapted to a 
much higher moral condition of human nature. The proportioning 
of remuneration to work done is really just only in so far as the 

^ [The words " which are now," i.e. 1852, " very numerous, and in some 
cases very successful " were omitted in the 4th ed. (1857).] 



212 BOOR 11. CHAPTER I. § 4 

more or less of tlie work is a matter of choice : wlien it depends on 
natural difference of strength or capacity, this principle of remunera- 
tion is in itself an injustice : it is giving to those who have ; assigning 
most to those who are already most favoured by nature. Con- 
sidered, however, as a compromise with the selfish type of character 
formed by the present standard of moraUty, and fostered by the 
existing social institutions, it is highly expedient ; and until educa- 
tion shall have been entirely regenerated, is far more likely to prove 
immediately successful, than an attempt at a higher ideal. 

The two elaborate forms of non-communistic Socialism known 
as St. Simonism and Fourierism are totally free from the objections 
usually urged against Communism ; and though they are open to 
others of their own, yet by the great intellectual power which in 
many respects distinguishes them, and by their large and philosophic 
treatment of some of the fundamental problems of society and 
morahty, they may justly be counted among the most remarkable 
productions of the past and present age. 

The St. Simonian scheme does not contemplate an equal, but 
an unequal, division of the produce ; it does not propose that all 
should be occupied alike, but differently, according to their vocation 
or capacity ; the function of each being assigned, like grades in 
a regiment, by the choice of the directing authority, and the 
remuneration being by salary, proportioned to the importance, in the 
eyes of that authority, of the function itself, and the merits of the 
person who fulfils it. For the constitution of the ruling body, 
different plans might be adopted, consistently with the essentials of 
the system. It might be appointed by popular suffrage. In the 
idea of the original authors, the rulers were supposed to be persons 
of genius and virtue, who obtained the voluntary adhesion of the rest 
by the force of mental superiority.^ That the scheme might in some 
pecuhar states of society work with advantage is not improbable. 
There is indeed a successful experiment, of a somewhat similar kind, 
on record, to which I have once alluded; that of the Jesuits in 
Paraguay. A race of savages, belonging to a portion of mankind 
more averse to consecutive exertion for a distant object than any 
other authentically known to us, was brought under the mental 
dominion of civihzed and instructed men who were united among 

1 [The next sentence of the original was omitted in the 3rd ed. (1852). 
" Society, thus constituted, would wear as diversified a face as it does now ; 
would be still fuller of interest and excitement, would hold out even more 
abundant stimulus to individual exertion, and would nourish, it is to be feared, 
even more of rivalries and of animosities than at present."] 



ST. SIMONISM 213 

themselves by a system of community of goods. To the absolute 
authority of these men they reverentially submitted themselves, 
and were induced by them to learn the arts of civilized Hfe, and to 
practise labours for the community, which no inducement that 
could have been offered would have prevailed on them to practise 
for themselves. This social system was of short duration, being 
prematurely destroyed by diplomatic arrangements and foreign 
force. That it could be brought into action at all was probably 
owing to the immense distance in point of knowledge and intellect 
which separated the few rulers from the whole body of the ruled, 
without any intermediate orders, either social or intellectual. In 
any other circumstances it would probably have been a complete 
failure. It supposes an absolute despotism in the heads of the 
association ; which would probably not be much improved if the 
depositaries of the despotism (contrary to the views of the authors 
of the system) were varied from time to time according to the result 
of a popular canvass. But to suppose that one or a few human 
beings, howsoever selected, could, by whatever machinery of 
subordinate agency, be quahfied to adapt each person's work to 
his capacity, and proportion each person's remuneration to his 
merits — to be, in fact, the dispensers of distributive justice to every 
member of a community ; or that any use which they could make 
of this power would give general satisfaction, or would be submitted 
to without the aid of force — is a supposition ahuost too chimerical 
to be reasoned against. A fixed rule, Hke that of equaUty, might 
be acquiesced in, and so might chance, or an external necessity ; but 
that a handful of human beings should weigh everybody in the 
balance, and give more to one and less to another at their sole 
pleasure and judgment would not be borne, unless from persons 
beheved to be more than men, and backed by supernatural terrors. 
1 The most skilfuUy combined, and with the greatest foresight 
of objections, of aU the forms of Sociahsm, is that commonly known 
as Fourierism. This system does not contemplate the abohtion of 
private property, nor even of inheritance ; on the contrary, it 
avowedly takes into consideration, as an element in the distribution 
of the produce, capital as well as labour. It proposes that the 
operations of industry should be carried on by associations of about 
two thousand members, combining their labour on a district of about 
a square league in extent, under the guidance of chiefs selected by 

^ [The account of Fourierism, in this and the next three paragraphs, was 
added in the 2nd ed. (1849).] 



214 BOOR 11. CHAPTER I. § 4 

themselves. In tlie distribution, a certain minimum is first assigned 
for the subsistence of every member of the community, whether 
capable or not of labour. The remainder of the produce is shared in 
certain proportions, to be determined beforehand, among the three 
elements, Labour, Capital, and Talent. The capital of the com- 
munity may be owned in unequal shares by different members, 
who would in that case receive, as in any other joint-stock company, 
proportional dividends. The claim of each person on the share 
of the produce apportioned to talent, is estimated by the grade or 
rank which the individual occupies in the several groups of labourers 
to which he or she belongs ; these grades being in all cases conferred 
by the choice of his or her companions. The remuneration, when 
received, would not of necessity be expended or enjoyed in common ; 
there would be separate mSnages for all who preferred them, and no 
other community of living is contemplated, than that all the members 
of the association should reside in the same pile of buildings ; for 
saving of labour and expense, not only in building, but in every 
branch of domestic economy ; and in order that, the whole of the 
buying and selhng operations of the community being performed 
by a single agent, the enormous portion of the produce of industry 
now carried off by the profits of mere distributors might be reduced 
to the smallest amount possible. 

This system, unHke Communism, does not, in theory at least, 
withdraw any of the motives to exertion which exist in the present 
state of society. On the contrary, if the arrangement worked 
according to the intentions of its contrivers, it would even strengthen 
those motives ; since each person would have much more certainty 
of reaping individually the fruits of increased skill or energy, bodily 
or mental, than under the present social arrangements can be felt 
by any but those who are in the most advantageous positions, or 
to whom the chapter of accidents is more than ordinarily favour- 
able. The Fourierists, however, have still another resource. They 
believe that they have solved the great and fundamental problem 
of rendering labour attractive. That this is not impracticable, 
they contend by very strong arguments ; in particular by one 
which they have in common with the Owenites, viz., that scarcely 
any labour, however severe, undergone by human beings for the 
sake of subsistence, exceeds in intensity that which other human 
beings, whose subsistence is already provided for, are found ready and 
even eager to undergo for pleasure. This certainly is a most signi- 
ficant fact, and one from which th*' situdent in social philosophy 



FOURIERISM 215 \ 



may draw important instruction. But the argument founded on 
it may easily be stretched too far. If occupations full of dis- 
comfort and fatigue are freely pursued by many persons as amuse- 
ments, who does not see that they are amusements exactly because 
they are pursued freely, and may be discontinued at pleasure ? 
The Hberty of quitting a position often makes the whole difference 
between its being painful and pleasurable. Many a person remains 
in the same town, street, or house from January to December, 
without a wish or a thought tending towards removal, who, if 
confined to that same place by the mandate of authority, would 
find the imprisonment absolutely intolerable. 

According to the Fourierists, scarcely any kind of useful labour 
is naturally and necessarily disagreeable, unless it is either regarded 
as dishonourable, or is immoderate in degree, or destitute of the 
stimulus of sympathy and emulation. Excessive toil needs not, 
they contend, be undergone by any one, in a society in which there 
would be no idle class, and no labour wasted, as so enormous an 
amount of labour is now wasted, in useless things ; and where fuU 
advantage would be taken of the power of association, both in 
increasing the efliciency of production, and in economizing con- 
sumption. The other requisites for rendering labour attractive 
would, they think, be found in the execution of all labour by social 
groups, to any number of which the same individual might simulta- 
neously belong, at his or her own choice : their grade in each being 
determined by the degr>se of service which they were found capable 
of rendering, as appreciated by the suffrages of their comrades. 
It is inferred from the diversity of tastes and talents, that every 
member of the community would be attached to several groups, 
employing themselves in various kinds of occupation, some bodily 
others mental, and would be capable of occupying a high place in 
some one or more ; so that a real equahty, or something more 
nearly approaching to it than might at first be supposed, would 
practically result : not, from the compression, but, on the contrary 
from the largest possible development, of the various natural 
superiorities residing in each individual. 

Even from so brief an outHne, it must be evident that this 
system does no violence to any of the general laws by which human 
action, even in the present imperfect state of moral and intellectual 
cultivation, is influenced : ^ and that it would be extremely rash to 

^ [The remainder of the paragraph as it now stands dates from the 3rd ed. 
(1852). In the 2nd ed. (1849) the paragraph went on from " influenced " aa 



216 BOOK 11. CHAPTER I. § 4 

pronounce it incapable of success, or unfitted to realize a great part 
of the hopes founded on it by its partisans. With regard to this, as to 
all other varieties of SociaHsm, the thing to be desired, and to which 
they have a just claim, is opportunity of trial. They are all capable 
of being tried on a moderate scale, and at no risk, either personal or 
pecuniary, to any except those who try them. It is for experience 
to determine how far or how soon any one or more of the possible 
systems of community of property will be fitted to substitute itself 
for the " organization of industry " based on private ownership of 

follows : " All persons would have a prospect of deriving individual advantage 
from every degree of labour, of abstinence, and of talent, which they individually 
exercised. The impediments to success would not be in the principles of the 
system, but in the unmanageable nature of its machinery. Before large bodies 
of human beings could be fit to live together in such close union, and still more, 
before they would be capable of adjusting, by peaceful arrangement among 
themselves, the relative claims of every class or kind of labour and talent, and 
of every individual in every class, a vast improvement in human character 
must be presupposed. When it is considered that each person who would have 
a voice in this adjustment would be a party interested in it, in every sense of the 
term — that each would be called on to take part by vote in fixing both the 
relative remuneration, and the relative estimation, of himself as compared with 
aU other labourers, and of his own class of labour or talent as compared with 
all others ; the degree of disinterestedness and of freedom from vanity and 
irritability which would be required in such a commmnity from every individual 
in it, would be such as is now only found in the elite of humanity : while if those 
qualities fell much short of the required standard, either the adjustment could 
not be made at all, or, if made by a majority, would engender jealousies and 
disappointments destructive of the internal harmony on which the whole 
working of the system avowedly depends. These, it is true, are difficulties, not 
impossibilities : and the Fourierists, who alone among Socialists are in a great 
degree alive to the true conditions of the problem which they undertake to solve, 
are not without ways and means of contending against these. With every 
advance in education and improvement, their system tends to become less 
impracticable, and the very attempt to make it succeed would cultivate, in 
those making the attempt, many of the virtues which it requires. But we have 
only yet considered the case of a single Fourierist community. When we 
remember that the communities themselves are to be the constituent units of 
an organised whole, (otherwise competition would rage as actively between 
rival communities as it now does between individual merchants or manufacturers, ) 
and that nothing less would be requisite for the complete success of the scheme 
than the organisation from a single centre of the whole industry of a nation, 
and even of the worl(i ; we may, without attempting to limit the ultimate 
capabilities of human nature, affirm, that the political economist, for a con- 
siderable time to come, will be chiefly concerned with the conditions of existence 
and progress belonging to a society founded on private property and individual 
competition ; and that, rude as is the manner in which those two principles 
apportion reward to exertion and to merit, they must form the basis of the 
principal improvements which can for the present be looked for in the econo- 
mical condition of humanity." 

Then began a new section : " And those improvements will be found to be 
far more considerable than the adherents of the various Socialist systems are 
willing to allow. Whatever may be the merit or demerit of their own schemes 



land and capital. In the meantime we may, without attempting 
to limit the ultimate capabilities of human nature, affirm, that the 
political economist, for a considerable time to come, will be chiefly- 
concerned with the conditions of existence and progress belonging 
to a society founded on private property and individual competition ; 
and that the object to be principally aimed at, in the present stage 
of human improvement, is not the subversion of the system of in- 
di\ddual property, but the improvement of it, and the full participa- 
tion of every member of the community in its benefits. ^ 

of society, they have hitherto shown themselves extremely ill acquainted with 
the economical laws of the existing social system ; and have, in consequence, 
habitually assumed as necessary effects of competition, evils which are by no 
means inevitably attendant on it. It is from the influence of this erroneous 
interpretation of existing facts, that many SociaUsts of high principles and 
attainments are led to regard the competitive system as radically incompatible 
with the economical well-being of the mass. 

" The principle of private property has never yet had a fair trial," &c., as 
now, supra, p. 208, and the remainder of that paragraph. 

The chapter ended with the following paragraph, of which the first sentence 
was retained later (supra, p. 209) : " We are as yet too ignorant either of what 
individual agency in its best form, or Socialism in its best form, can accomplish, 
to be qualified to decide which of the two will be the ultimate form of human 
society. In the present stage of human improvement at least, it is not (I 
conceive) the subversion of the system of individual property that should be 
aimed at, but the improvement of it, and the participation of every member 
of the community in its benefits. Far, however, from looking upon the various 
classes of Socialists with any approach to disrespect, I honour the intentions of 
almost all who are publicly known in that character, the acquirements and 
talents of several, and I regard them, taken collectively, as one of the most 
valuable elements of human improvement now existing ; both from the impulse 
they give to the reconsideration and discussion of all the most important 
questions, and from the ideas they have contributed to many ; ideas from which 
the most advanced supporters of the existing order of society have still much 
to learn."] 

^ [See Appendix K, MilVs earlier and later ivritings on Socialism, and 
Appendix L, The later history of Socialism.} 



CHAPTER II 

THE SAME SUBJECT CONTINUED 

§ 1. It is next to be considered, wliat is included in tlie idea 
of private property, and by wliat considerations the application of 
the principle should be bounded. 

The institution of property, when limited to its essential elements, 
^ consists in the recognition, in each person, of a right to the exclusive 
disposal of what he or she have produced by their own exertions, 
or received either by gift or by fair agreement, without force or fraud, 
from those who produced it. The foundation of the whole is the 
right of producers to what they themselves have produced. It may 
be objected, therefore, to the institution as it now exists, that it 
recognises rights of property in individuals over things which they 
have not produced. For example (it may be said) the operatives in 
a manufactory create, by their labour and skill, the whole produce ; 
yet, instead of its belonging to them, the law gives them only their 
stipulated hire, and transfers the produce to some one who has 
merely supplied the funds, without perhaps contributing anything 
to the work itself, even in the form of superintendence. The answer 
to this is, that the labour of manufacture is only one of the conditions 
which must combine for the production of the commodity. The 
labour cannot be carried on without materials and machinery, nor 
without a stock of necessaries provided in advance to maintain the 
labourers during the production. All these things are the fruits of 
previous labour. If the labourers were possessed of them, they 
would not need to divide the produce with any one ; but while 
they have them not, an equivalent must be given to those who 
have, both for the antecedent labour, and for the abstinence by 
which the produce of that labour, instead of being expended on 
indulgences, has been reserved for this use. The capital may not 
have been, and in most cases was not, created by the labour and 
abstinence of the present possessor ; but it was created by the 



JTJTcV^iXiiiVX X 



labour and abstinence of some former person, who may indeed have 
been wrongfully dispossessed of it,^ but who, in the present age of the 
world, much more probably transferred his claims to the present 
capitalist by gift or voluntary contract : and the abstinence at 
least must have been continued by each successive owner, down 
to the present. ^ If it be said, as it may with truth, that those 
who have inherited the savings of others have an advantage which 
they may have in no way deserved, over the industrious whose pre- 
decessors have not left them anything ; I not only admit, but 
strenuously contend, that this unearned advantage should be cur- 
tailed, as much as is consistent with justice to those who thought 
fit to dispose of their savings by giving them to their descendants. 
But while it is true that the labourers are at a disadvantage com- 
pared with those whose predecessors have saved, it is also true 
that the labourers are far better off than if those predecessors had 
not saved. They share in the advantage, though not to an equal 
extent with the inheritors. The terms of co-operation between 
present labour and the fruits of past labour and saving, are a subject 
for adjustment between the two parties. Each is necessary to the 
other. The capitalists can do nothing without labourers, nor the 
labourers without capital.^ If the laboui^ers compete for employ- 
ment, the capitalists on their part compete for labour to the full 
extent of the circulating capital of the country. * Competition is 
often spoken of as if it were necessarily a cause of misery and 

1 [This was added in the 3rd ed. (1852). The original ran : " The labour 
and abstinence of some former person, who, by gift or contract, transferred 
his claims to the present capitalist."] 

^ [This and the next two sentences were added in the 3rd ed.] 

^ [Here was omitted in the 3rd ed. the following passage of the original : 
" It may be said, they do not meet on an equal footing : the capitalist, as the 
richer, can take advantage of the labourer's necessities, and make his conditions 
as he pleases. He could do so, undoubtedly, if he were but one. The capitahsts 
collectively could do so, if they were not too numerous to combine, and act as 
a body. But, as things are, they have no such advantage. Where combination 
is impossible, the terms of the contract depend on competition, that is, on the 
amount of capital which the collective abstinence of society has provided, 
compared with the number of the labourers."] 

* [The nezt two sentences, down to the word " Ireland," replaced in the 2nd 
ed. (1849) the following passage of the original : 

" A joint administration on account of the state would not make the fund go 
further, or afford better terms to the labourers, unless either by enforcing, on 
the society collectively, greater abstinence, or by limiting more strictly the 
number of the labouring population. It is impossible to increase the quotient 
that falls to the share of each labourer, without either augmenting the dividend, 
or diminishing the divisor." 

To the substituted passage, the words "and much . . . England" were 
added in the 3rd ed.] 



JL^\-/VyjL^ JLJ.* >w/JLJLJ.AJ 



degradation to the labouring class ; as if high wages were not precisely 
as much a product of competition as low wages. The remuneration 
of labour is as much the result of the law of competition in the 
United States, as it is in Ireland, and much more completely so 
than in England. 

The right of property includes then, the freedom of acquiring 
by contract. The right of each to what he has produced implies 
a right to what has been produced by others, if obtained by their 
free consent ; since the producers must either have given it from 
good will, or exchanged it for what they esteemed an equivalent, 
and to prevent them from doing so would be to infringe their right 
of property in the product of their own industry. 

§ 2. Before proceeding to consider the things which the principle 
of individual property does not include, we must specify one more 
thing which it does include : and this is that a title, after a certain 
period, should be given by prescription. According to the funda- 
mental idea of property, indeed, nothing ought to be treated as 
such, which has been acquired by force or fraud, or appropriated in 
ignorance of a prior title vested in some other person ; but it is 
necessary to the security of rightful possessors, that they should not 
be molested by charges of wrongful acquisition, when by the lapse 
of time witnesses must have perished or been lost sight of, and the 
real character of the transaction can no longer be cleared up. 
Possession which has not been legally questioned within a moderate 
number of years, ought to be, as by the laws of all nations it is, 
a complete title. Even when the acquisition was wrongful, the dis- 
possession, after a generation has elapsed, of the probably bond fide 
possessors, by the revival of a claim which had been long dormant, 
would generally be a greater injustice, and almost always a greater 
private and public mischief, than leaving the original wrong without 
atonement. It may seem hard that a claim, originally just, should 
be defeated by mere lapse of time ; but there is a time after which 
(even looking at the individual case, and without regard to the 
general efiect on the security of possessors) , the balance of hardship 
turns the other way. With the injustices of men, as with the con- 
vulsions and disasters of nature, the longer they remain unrepaired, 
the greater become the obstacles to repairing them, arising from the 
aftergrowths which would have to be torn up or broken through. 
In no human transactions, not even in the simplest and clearest, 
does it follow that a thing is fit to be done now, because it was fit 



INHERITANCE 221 

to be done sixty years ago. It is scarcely needful to remark, that 
these reasons for not disturbing acts of injustice of old date, cannot 
apply to unjust systems or institutions ; since a bad law or usage 
is not one bad act, in the remote past, but a perpetual repetition of 
bad acts, as long as the law or usage lasts. 

Such, then, being the essentials of private property, it is now to 
be considered, to what extent the forms in which the institution has 
existed in different states of society, or still exists, are necessary 
consequences of its principle, or are recommended by the reasons 
on which it is grounded. 

§ 3. Nothing is implied in property but the right of each to his 
(or her) own faculties, to what he can produce by them, and to what- 
ever he can get for them in a fair market ; together with his right 
to give this to any other person if he chooses, and the right of that 
other to receive and enjoy it. 

It follows, therefore, that although the right of bequest, or gift 
after death, forms part of the idea of private property, the right of 
inheritance, as distinguished from bequest, does not. That the pro- 
perty of persons who have made no disposition of it during their 
lifetime, should pass first to their children, and faiUng them, to the 
nearest relations, may be a proper arrangement or not, but is no 
consequence of the principle of private property. Although there 
belong to the decision of such questions many considerations besides 
those of political economy, it is not foreign to the plan of this work to 
suggest, for the judgment of thinkers, the view of them which most 
recommends itself to the writer's mind. 

No presumption in favour of existing ideas on this subject is to 
be derived from their antiquity. In early ages, the property of a 
deceased person passed to his children and nearest relatives by so 
natural and obvious an arrangement, that no other was Kkely to be 
even thought of in competition with it. In the first place, they were 
usually present on the spot : they were in possession, and if they had 
no other title, had that, so important in an early state of society, of 
first occupancy. Secondly, they were already, in a manner, joint 
owners of his property during his Hfe. If the property was in land, 
it had generally been conferred by the State on a family rather than 
on an individual : if it consisted of cattle or moveable goods, it had 
probably been acquired, and was certainly protected and defended, 
by the united efforts of all members of the family who were of an 
age to work or fight. Exclusive individual property in the modern 



222 BOOK 11. CHAPTER II. § 3 

sense, scarcely entered into the ideas of the time ; and when the 
first magistrate of the association died, he really left nothing vacant 
but his own share in the division, which devolved on the member 
of the family who succeeded to his authority. To have disposed 
of the property otherwise, would have been to break up a Httle 
commonwealth, united by ideas, interest, and habits, and to cast 
them adrift on the world. These considerations, though rather felt 
than reasoned about, had so great an influence on the minds of man- 
kind, as to create the idea of an inherent right in the children to the 
possessions of their ancestor ; a right which it was not competent to 
himself to defeat. Bequest, in a primitive state of society, was 
seldom recognised ; a clear proof, were there no other, that property 
was conceived in a manner totally different from the conception of it 
in the present time.* 

But the feudal family, the last historical form of patriarchal life, 
has long perished, and the unit of society is not now the family or 
clan, composed of all the reputed descendants of a common ancestor, 
but the individual ; or at most a pair of individuals, with their 
unemancipated children. Property is now inherent in individuals, 
not in famiUes : the children when grown up do not follow the occu- 
pations or fortunes of the parent : if they participate in the parent's 
pecuniary means it is at his or her pleasure, and not by a voice in the 
ownership and government of the whole, but generally by the exclu- 
sive enjoyment of a part ; and in this country at least (except as far 
as entails or settlements are an obstacle) it is in the power of parents 
to disinherit even their children, and leave their fortune to strangers. 
More distant relatives are in general almost as completely detached 
from the family and its interests as if they were in no way connected 
with it. The only claim they are supposed to have on their richer 
relations, is to a preference, cceteris paribus, in good offices, and some 
aid in case of actual necessity. 

So great a change in the constitution of society must make a 
considerable difference in the grounds on which the disposal of pro- 
perty by inheritance should rest. The reasons usually assigned 
by modern writers for giving the property of a person who dies 
intestate to the children, or nearest relatives, are, first, the supposi- 
tion that, in so disposing of it, the law is more hkely than in any other 
mode to do what the proprietor would have done, if he had done 
anything ; and secondly, the hardship, to those who Uved with their 

* [1862] See, for admirable illustrations of this and many kindred points, 
Mr. Maine's profound work on Ancient Law and its Relation to Modern Ideas, 



xvi XX jiirvx X Ai'M \jjir 



parents and partook in their opulence, of being cast down from the 
enjoyments of wealth into poverty and privation. 

There is some force in both these arguments. The law ought, 
no doubt, to do for the children or dependents of an intestate, 
whatever it was the duty of the parent or protector to have done,i 
so far as this can be known by any one besides himself. Since, how- 
ever, the law cannot decide on individual claims, but must proceed by 
general rules, it is next to be considered what these rules should be. 

We may first remark, that in regard to collateral relatives, it 
is not, unless on grounds personal to the particular individual, 
the duty of any one to make a pecuniary provision for them. No one 
now expects it, unless there happen to be no direct heirs ; nor would 
it be expected even then, if the expectation were not created by the 
provisions of the law in case of intestacy. I see, therefore, no reason 
why collateral inheritance should exist at all. Mr. Bentham 
long ago proposed, and other high authorities have agreed in the 
opinion, that if there are no heirs either in the descending or in the 
ascending Une, the property, in case of intestacy, should escheat to 
the State. With respect to the more remote degrees of collateral 
relationship, the point is not very likely to be disputed. Few will 
maintain that there is any good reason why the accumulations 
of some childless miser should on his death (as every now and then 
happens) go to enrich a distant relative who never saw him, who 
perhaps never knew himself to be related to him until there was 
something to be gained by it, and who had no moral claim upon him 
of any kind, more than the most entire stranger. But the reason of 
the case applies aUke to all collaterals, even in the nearest degree. 
Collaterals have no real claims, but such as may be equally strong 
in the case of non-relatives ; and in the one case as in the other, 
where valid claims exist, the proper mode of paying regard to them 
is by bequest.2 

^ [The rest of this paragraph replaced in the 3rd ed. (1852) the following 
original text : " but from accident or negUgence or worse causes he failed to 
do. Whether it would be possible, by means of a pubhc administrator of 
intestate estates, to take cognizance of special claims and see justice done in 
detail, is a question of some difficulty into which I forbear to enter. I shall 
only consider what might with best reason be laid down as a general rule."] 

2 [From the 3rd ed. (1852) was omitted the following passage of the original : 
" If any near relatives, known to be such, were in a state of indigence, a donation, 
or a small pension, according to circumstances, might, in case of intestacy, be 
assigned to them when the State appropriated the inheritance. This would 
be a justice, or a generosity, which they do not experience from the present law, 
since that gives all to the nearest collaterals, however great may be the neces- 
sities of those more distant."] 



.1J\J\JJ.JL. J.J., \JJ.J..C^A. J.JLUXV XJ.a >( %J 



The claims of children are of a different nature : they are real, 
and indefeasible. But even of these, I venture to think that the 
measure usually taken is an erroneous one : what is due to children 
is in some respects underrated, in others, as it appears to me, exagger- 
ated. One of the most binding of all obligations, that of not bringing 
children into the world unless they can be maintained in comfort 
during childhood, and brought up with a likelihood of supporting 
themselves when of full age, is both disregarded in practice and made 
light of in theory in a manner disgraceful to human intelligence. 
On the other hand, when the parent possesses property, the claims of 
the children upon it seem to me to be the subject of an opposite 
error. Whatever fortune a parent may have inherited, or, still more, 
may have acquired, I cannot admit that he owes to his children, 
merely because they are his children, to leave them rich, without the 
necessity of any exertion. I could not admit it, even if to be so 
left were always, and certainly, for the good of the children them- 
selves. But this is in the highest degree uncertain. It depends on 
individual character. Without supposing extreme cases, it may be 
affirmed that in a majority of instances the good not only of society 
but of the individuals would be better consulted by bequeathing to 
them a moderate, than a large provision. This, which is a common- 
place of morahsts ancient and modern, is felt to be true by many 
inteUigent parents, and would be acted upon much more frequently, 
if they did not allow themselves to consider less what really is, 
than what will be thought by others to be, advantageous to the 
children. 

The duties of parents to their children are those which are 
indissolubly attached to the fact of causing the existence of a human 
being. The parent owes to society to endeavour to make the child 
a good and valuable member of it, and owes to the children to provide, 
so far as depends on him, such education, and such apphances and 
means, as will enable them to start with a fair chance of achieving 
by their own exertions a successful life. To this every child has a 
claim ; and I cannot admit that, as a child, he has a claim to more. 
There is a case in which these obhgations present themselves in their 
true light, without any extrinsic circumstances to disguise or confuse 
them : it is that of an illegitimate child. To such a child it is gener- 
ally felt that there is due from the parent, the amount of provision 
for his welfare which will enable him to make his life on the whole a 
desirable one. I hold that to no child, merely as such, anything more 
is due, than what is admitted to be due to an illegitimate child : 



IJNMH^KITAJNUE 225 

and tliat no child for whom thus much has been done, has, unless on 
the score of previously raised expectations, any grievance, if the 
remainder of the parent's fortune is devoted to pubhc uses, or to the 
benefit of individuals on whom in the parent's opinion it is better 
bestowed. 

In order to give the children that fair chance of a desirable 
existence, to which they are entitled, it is generally necessary that 
they should not be brought up from childhood in habits of luxury 
which they will not have the means of indulging in after-life. This, 
again, is a duty often flagrantly violated by possessors of terminable 
incomes, who have little property to leave. When the children of 
rich parents have lived, as it is natural they should do, in habits 
corresponding to the scale of expenditure in which the parents 
indulge, it is generally the duty of the parents to make a greater 
provision for them, than would suffice for children otherwise brought 
up. I say generally, because even here there is another side to the 
question. It is a proposition quite capable of being maintained, 
that to a strong nature which has to make its way against narrow 
circumstances, to have known early some of the feelings and experi- 
ences of wealth, is an advantage both in the formation of character 
and in the happiness of Hfe. But allowing that children have a just 
ground of complaint, who have been brought up to require luxuries 
which they are not afterwards Hkely to obtain, and that their claim, 
therefore, is good to a provision bearing some relation to the mode 
of their bringing up ; this, too, is a claim which is particularly Hable 
to be stretched further than its reasons warrant. The case is exactly 
that of the younger children of the nobility and landed gentry, the 
bulk of whose fortune passes to the eldest son. The other sons, who 
are usually numerous, are brought up in the same habits of luxury 
as the future heir, and they receive as a younger brother's portion, 
generally what the reason of the case dictates, namely, enough to 
support, in the habits of Hfe to which they are accustomed, them- 
selves, but not a wife or children. It really is no grievance to any 
man, that for the means of marrying and of supporting a family, 
he has to depend on his own exertions. 

A provision, then, such as is admitted to be reasonable in the case 
of illegitimate children, for younger children, wherever in short the 
justice of the case, and the real interests of the individuals and of 
society, are the only things considered, is, I conceive, all that parents 
owe to their children, and all, therefore, which the State owes to the 
children of those who die intestate. The surplus, if any, I hold that 



226 J30Uil 11. CllArXlGK 11. § 4 

it may rightly appropriate to the general purposes of the community. 
I would not, however, be supposed to recommend that parents should 
never do more for their children than what, merely as children, they 
have a moral right to. In some cases it is imperative, in many laud- 
able, and in all allowable, to do much more. For this, however, 
the means are afforded by the Hberty of bequest. It is due, not to 
the children but to the parents, that they should have the power of 
showing marks of affection, of requiting services and sacrifices, 
and of bestowing their wealth according to their own. preferences., 
or their own judgment of fitness. 

§ 4. Whether the power of bequest should itself be subject 
to limitation, is an ulterior question of great importance. Unlike 
inheritance ah intestato, bequest is one of the attributes of property : 
the ownership of a thing cannot be looked upon as complete without 
the power of bestowing it, at death or during life, at the owner's 
pleasure : and aU the reasons, which recommend that private pro- 
perty should exist, recommend pro tanto this extension of it. But 
property is only a means to an end, not itself the end. Like all other 
proprietary rights, and even in a greater degree than most, the power 
of bequest may be so exercised as to conflict with the permanent 
interests of the human race. It does so, when, not content with 
bequeathing an estate to A, the testator prescribes that on A's death 
it shall pass to his eldest son, and to that son's son, and so on for 
ever. No doubt, persons have occasionally exerted themselves more 
strenuously to acquire a fortune from the hope of founding a family 
in perpetuity ; but the mischiefs to society of such perpetuities out- 
weigh the value of this incentive to exertion, and the incentives 
in the case of those who have the opportunity of making large 
fortunes are strong enough without it. A similar abuse of the 
power of bequest is committed when a person who does the 
meritorious act of leaving property for public uses, attempts to pre- 
scribe the details of its application in perpetuity ; when in founding a 
place of education (for instance) he dictates, for ever, what doctrines 
shall be taught. It being impossible that any one should know 
what doctrines will be fit to be taught after he has been dead for 
centuries, the law ought not to give effect to such dispositions of 
property, unless subject to the perpetual revision (after a certain 
interval has elapsed) of a fitting authority. 

There are obvious Umitations. But even the simplest exercise 
of the right of bequest, that of determining the person to whom 



BEQUEST 227 

property shall pass immediately on the death of the testator, has 
always been reckoned among the privileges which might be limited 
or varied, according to views of expediency. The Umitations, 
hitherto, have been almost solely in favour of children. In England 
the right is in principle unlimited, almost the only impediment being 
that arising from a settlement by a former proprietor, in which case 
the holder for the time being cannot indeed bequeath his possessions, 
but only because there is nothing to bequeath, he having merely 
a Hfe interest. By the Roman law, on which the civil legislation of 
the Continent of Europe is principally founded, bequest originally 
was not permitted at all, and even after it was introduced, a legitima 
portio was compulsorily reserved for each child ; and such is still the 
law in some of the Continental nations. By the French law since 
the Revolution, the parent can only dispose by will, of a portion 
equal to the share of one child, each of the children taking an equal 
portion. This entail, as it may be called, of the bulk of every one's 
property upon the children collectively, seems to me as Uttle defen- 
sible in principle as an entail in favour of one child, though it does not 
shock so directly the idea of justice. I cannot admit that^ parents 
should be compelled to leave to their children even that provision 
which, as children, I have contended that they have a moral claim to. 
Children may forfeit that claim by general unworthiness, or parti- 
cular ill-conduct to the parents : they may have other resources 
or prospects : what has been previously done for them, in the way 
of education and advancement in Hfe, may fully satisfy their moral 
claim ; or others may have claims superior to theirs. ^ 

The extreme restriction of the power of bequest in French law 
was adopted as a democratic expedient, to break down the custom 
of primogeniture, and counteract the tendency of inherited property 
to collect in large masses. I agree in thinking these obj ects eminently 
desirable ; but the means used are not, I think, the most judicious. 
Were I framing a code of laws according to what seems to me best 
in itself, without regard to existing opinions and sentiments, I 
should prefer to restrict, not what any one might bequeath, but what 
any one should be permitted to acquire, by bequest or inheritance. 

1 [So since the 3rd ed. (1852). The original ran " It is questionable whether," 
&c.] 

2 [From the 3rd ed. was here omitted the following passage of the original : 
" But however the case may be as to a mere provision, I hold that justice and 
expediency are wholly against compelhng anything beyond. That a person 
should be certain from childhood of succeeding to a large fortune independently 
of the good will and affection of any human being, is, unless under very favour- 
able influences of other kinds, almost a fatal circumstance in his education."] 



228 BOOK II. CHAPTER II. § 4 

Each person should have power to dispose by will of his or her whole 
property ; but not to lavish it in enriching some one individual, 
beyond a certain maximum, which should be fixed sufficiently high 
to afford the means of comfortable independence. The inequalities 
of property which arise from unequal industry, frugality, persever- 
ance, talents, and to a certain extent even opportunities, are insepar- 
able from the principle of private property, and if we accept the 
principle, we must bear with these consequences of it : but I see 
nothing objectionable in fixing a limit to what any one may acquire 
by the mere favour of others, without any exercise of his faculties, 
and in requiring that if he desires any further accession of fortune, 
he shall work for it.* I do not conceive that the degree of limitation 
which this would impose on the right of bequest, would be felt as a 
burthensome restraint by any testator who estimated a large fortune 
at its true value, that of the pleasures and advantages that can be 
purchased with it : on even the most extravagant estimate of which 
it must be apparent to every one, that the difference to the happiness 
of the possessor between a moderate independence and five times as 
much is insignificant when weighed against the enjoyment that 
might be given, and the permanent benefits diffused, by some other 
disposal of the four-fifths. So long indeed as the opinion practically 
prevails, that the best thing which can be done for objects of affection 
is to heap on them to satiety those intrinsically worthless things 
on which large fortunes are mostly expended, there might be little 
use in enacting such a law, even if it were possible to get it passed, 
since if there were the inclination, there would generally be the power 
of evading it. The law would be unavailing unless the popular 
sentiment went energetically along with it ; which (judging from the 
tenacious adherence of public opinion in France to the law of 
compulsory division) it would in some states of society and govern- 
ment be very likely to do, however much the contrary may be the 
fact in England and at the present time. If the restriction could be 

* [1865] In the case of capital employed in the hands of the owner himself 
in carrying on any of the operations of industry, there are strong grounds for 
Jeaving to him the power of bequeathing to one person the whole of the funds 
actually engaged in a single enterprise. It is well that he should be enabled 
to leave the enterprise under the control of whichever of his heirs he regards 
as best fitted to conduct it virtuously and efficiently : and the necessity (very 
frequent and inconvenient under the French law) would be thus obviated, of 
breaking up a manufacturing or commercial establishment at the death of its 
chief. In like manner, it should be allowed to a proprietor who leaves to one 
of his successors the moral burthen of keeping up an ancestral mansion and 
park or pleasure-ground, to bestow along with them as much other property 
as is required for their sufficient maintenance. 



PROPERTY IN LAND 229 

made practically effectual, the benefit would be great. Wealth 
which could no longer be employed in over ^ -enriching a few, would 
either be devoted to objects of pubUc usefulness, or if bestowed on 
individuals, would be distributed among a larger number. While 
those enormous fortunes which no one needs for any personal purpose 
but ostentation or improper power, would become much less nume- 
rous, there would be a great multiplication of persons in easy 
circumstances, with the advantages of leisure, and all the real enjoy- 
ments which wealth can give, except those of vanity ; a class by 
whom the services which a nation having leisured classes is entitled 
to expect from them, either by their direct exertions or by the tone 
they give to the feehngs and tastes of the public, would be rendered 
in a much more beneficial manner than at present. A large portion 
also of the accumulations of successful industry would probably 
be devoted to pubhc uses, either by direct bequests to the State, 
or by the endowment of institutions ; as is already done very largely 
in the United States, where the ideas and practice in the matter of 
inheritance seem to be unusually rational and beneficial.* 

§ 5. The next point to be considered is, whether the reasons 
on which the institution of property rests are applicable to all things 
in which a right of exclusive ownership is at present recognised ; 
and if not, on what other grounds the recognition is defensible. 

The essential principle of property being to assure to all persons 
what they have produced by their labour and accumulated by their 

1 [" Over " was added in the 3rd ed. (1852).] 

* " Munificent bequests and donations for public purposes, whether chari- 
table or educational, form a striking feature in the modern history of the 
United States, and especially of New England. Not only is it common for rich 
capitalists to leave by will a portion of their fortune towards the endowment 
of national institutions, but individuals during their lifetime make magnificent 
grants of money for the same objects. There is here no compulsory law for 
the equal partition of property among children, as in France, and on the other 
hand no custom of entail or primogeniture, as in England, so that the affluent 
feel themselves at liberty to share their wealth between their kindred and the 
public ; it being impossible to found a family, and parents having frequently 
the happiness of seeing all their children well provided for and independent 
long before their death. I have seen a list of bequests and donations made during 
the last thirty years for the benefit of religious, charitable, and literary institu- 
tions in the state of Massachusetts alone, and they amounted to no less a sum 
than six milUons of dollars, or more than a million sterling.' — Ly ell's Travels 
in America, vol. i. p. 263. 

[1852] In England, whoever leaves anything beyond trifling legacies for 
public or beneficent objects when he has any near relatives living, does so at 
the risk of being declared insane by a jury after his death, or at the least, of 
having the property wasted in a Chancery suit to set aside the will. 



230 BOOK 11. CHAPTER 11. § 5 

abstinence, this principle cannot apply to what is not tlie produce of 
labour, the raw material of the earth. If the land derived its pro- 
ductive power wholly from nature, and not at all from industry, 
or if there were any means of discriminating what is derived from 
each source, it not only would not be necessary, but it would be the 
height of injustice, to let the gift of nature be engrossed by indi- 
viduals. The use of the land in agriculture must indeed, for the time 
being, be of necessity exclusive ; the same person who has ploughed 
and sown must be permitted to reap : but the land might be occupied 
for one season only, as among the ancient Germans ; or might be 
periodically redivided as population increased : or the State might 
be the universal landlord, and the cultivators tenants under it, 
either on lease or at will. 

But though land is not the produce of industry, most of its 
valuable qualities are so. Labour is not only requisite for using, 
but almost equally so for fashioning, the instrument. Considerable 
labour is often required at the commencement, to clear the land fcx 
cultivation. In many cases, even when cleared, its productiveness 
is wholly the effect of labour and art. The Bedford Level produced 
Httle or nothing until artificially drained. The bogs of Ireland, 
until the same thing is done to them, can produce little besides fuel. 
One of the barrenest soils in the world, composed of the material 
of the Goodwin Sands, the Pays de Waes in Flanders, has been so 
fertilized by industry, as to have become one of the most productive 
in Europe. Cultivation also requires buildings and fences, which are 
wholly the produce of labour. The fruits of this industry cannot 
be reaped in a short period. The labour and outlay are immediate, 
the benefit is spread over many years, perhaps over all future time. 
A holder will not incur this labour and outlay when strangers and 
not himself -will be benefited by it. If he undertakes such improve- 
ments, he must have a sufficient period before him in which to profit 
by them : and he is in no way so sure of having always a sufficient 
period as when his tenure is perpetual.* 

♦ " What endowed man with intelHgence and perseverance in labour, what 
made him direct all his efforts towards an end useful to his race, was the 
sentiment of perpetuity. The lands which the streams have deposited along 
their course are always the most fertUe, but are also those which they menace 
with their inundations or corrupt by marshes. Under the guarantee of perpe- 
tuity men undertook long and painful labours to give the marshes an outlet, to 
erect embankments against inundations, to distribute by irrigation- channels 
fertilizing waters over the same fields which the same waters had condemned 
to sterility. Under the same guarantee, man, no longer contenting himself with 
the annual products of the earth, distinguished among the wild vegetation the 



PROPERTY IN LAND 231 

§ 6. These are the reasons which form the justification, in an 
economical point of view, of property in land. It is seen, that they 
are only valid, in so far as the proprietor of land is its improver. 
Whenever, in any country, the proprietor, generally speaking, ceases 
to be the improver, pohtical economy has nothing to say in 
defence of landed property, as there established. In no sound 
theory of private property was it ever contemplated that the 
proprietor of land should be merely a sinecurist quartered on it. 

In Great Britain, the landed proprietor is not unfrequently 
an improver. But it cannot be said that he is generally so. And 
in the majority of cases he grants the liberty of cultivation [1848] 
on such terms, as to prevent improvements from being made by any 
one else. In the southern parts of the island, as there are usually 
no leases, permanent improvements can scarcely be made except 
by the landlord's capital ; accordingly the South, compared with the 
North of England, and with the Lowlands of Scotland, is still 
extremely backward in agricultural improvement. The truth is, 
that any very general improvement of land by the landlords is 
hardly compatible with a law or custom of primogeniture. When 
the land goes wholly to the heir, it generally goes to him severed 
from the pecuniary resources which would enable him to improve it, 
the personal property being absorbed by the provision for younger 
children, and the land itself often heavily burthened for the same 
purpose. There is therefore but a small proportion of landlords 
who have the means of making expensive improvements, unless 
they do it with borrowed money, and by adding to the mortgages 
with which in most cases the land was already burthened when they 

perennial plants, shrubs, and trees which would be useful to him, improved 
them by culture, changed, it may almost be said, their very nature, and multi- 
plied their amount. There are fruits which it required centuries of cultivation 
to bring to their present perfection, and others which have been introduced 
from the most remote regions. Men have opened the earth to a great depth to 
renew the soil, and fertilize it by the mixture of its parts and by contact with 
the air ; they have fixed on the hillsides the soU which would have sHd off, 
and have covered the face of the country with a vegetation everywhere abundant, 
and everywhere useful to the human race. Among their labours there are some 
of which the fruits can only be reaped at the end of ten or of twenty years ; 
there are others by which their posterity will still benefit after several centuries. 
All have concurred in augmenting the productive force of nature, in giving to 
mankind a revenue infinitely more abundant, a revenue of which a considerable 
part is consumed by those who have no share in the ownership of the land, 
but who would not have found a maintenance but for that appropriation 
of the soil by which they seem, at first sight, to have been disinherited." — 
Sismondi, Etude sur VEconomie Politique, Troisieme Essai, De la Richesse 
Territoriale, 



232 BOOK IL CHAPTER II. § 6 

received it. But the position of the owner of a deeply mortgaged 
estate is so precarious ; economy is so unwelcome to one whose 
apparent fortune greatly exceeds his real means, and the vicissitudes 
of rent and price, which only trench upon the margin of his income, 
are so formidable to one who can call little more than the margin his 
own, that it is no wonder if few landlords find themselves in a 
condition to make immediate sacrifices for the sake of future profit. 
Were they ever so much inclined, those alone can prudently do it, 
who have seriously studied the principles of scientific agriculture : 
and great landlords have seldom seriously studied anything. They 
might at least hold out inducements to the farmers to do what 
they will not or cannot do themselves ; but even in granting leases, 
it is in England a general complaint [1848] that they tie up their 
tenants by covenants grounded on the practices of an obsolete 
and exploded agriculture ; while most of them, by withholding 
leases altogether, and giving the farmer no guarantee of possession 
beyond a single harvest, keep the land on a footing Httle more 
favourable to improvement than in the time of our barbarous 
ancestors, 

immetata quibus jugera liberas 



Fruges et Cererem ferunt, 

Nee cultura placet longior annua. 

Landed property in England is thus very far from completely 
fulfilling the conditions which render its existence economically 
justifiable. But if insufficiently realized even in England, in Ireland 
those conditions are [1 848] not complied with at all. With individual 
exceptions (some of them very honourable ones), the owners of 
Irish estates do nothing for the land but drain it of its produce. 
What has been epigrammatically said in the discussions on " peculiar 
burthens " is literally true when applied to them, that the greatest 
" burthen on land " is the landlords. Keturning nothing to the 
soil, they consume its whole produce, minus the potatoes strictly 
necessary to keep the inhabitants from dying of famine ; and when 
they have any purpose of improvement, the preparatory step 
usually consists in not leaving even this pittance, but turning out 
the people to beggary if not to starvation.* When landed property 

* [1862] I must beg the reader to bear in mind that this paragraph was 
written fifteen years ago. So wonderful are the changes, both moral and 
economical, taking place in our age, that, without perpetually re-writing a 
work like the present, it is impossible to keep up with them. [In ed. 1865, 
" eighteen years " ; in ed. 1871, " more than twenty."] 



PROPERTY IN LAND 233 

has placed itself upon this footing it ceases to be defensible, and 
tbe time has come for making some new arrangement of the matter. 

When the " sacredness of property " is talked of, it should always 
be remembered, that any such sacredness does not belong in the same 
degree to landed property. No man made the land. It is the 
original inheritance of the whole species. Its appropriation is wholly a 
question of general expediency. When private property in land is not 
expedient, it is unjust.^ It is no hardship to any one to be excluded 
from what others have produced : they were not bound to produce 
it for his use, and he loses nothing by not sharing in what otherwise 
would not have existed at all. But it is some hardship to be born 
into the world and to find all nature's gifts previously engrossed, 
and no place left for the new-comer. To reconcile people to this, 
after they have once admitted into their minds the idea that any 
moral rights belong to them as human beings, it will always be 
necessary to convince them that the exclusive appropriation is 
good for mankind on the whole, themselves included. But this is 
what no sane human being could be persuaded of, if the relation 
between the landowner and the cultivator were the same everywhere 
as it has been in Ireland. 

Landed property is felt, even by those most tenacious of its 
rights, to be a different thing from other property ; and where the 
bulk of the community have been disinherited of their share of it, 
and it has become the exclusive attribute of a small minority, men 
have generally tried to reconcile it, at least in theory, to their sense 
of justice, by endeavouring to attach duties to it, and erecting 
it into a sort of magistracy, either moral or legal. But if the state 
is at Hberty to treat the possessors of land as public functionaries, it 
is only going one step further to say that it is at liberty to discard 
them. The claim of the landowners to the land is altogether 
subordinate to the general policy of the state. The principle of pro- 
perty gives them no right to the land, but only a right to compensation 
for what ever portion of their interest in the land it may be the policy 
of the state to deprive them of. To that, their claim is indefeasible. 
It is due to landowners, and to owners of any property whatever, 
recognised as such by the state, that they should not be dispossessed 
of it without receiving its pecuniary value, or an annual income 
equal to what they derived from it. This is due on the general 

^ [This, and the previous sentence replaced in the 3rd ed. (1852) the original 
text : " Public reasons exist for its being appropriated. But if those reasons 
lost their force, the thing would be unjust."] 



234 liOOK II. CHAPTER 11. § 6 

principles on which property rests. If the land was bought with the 
produce of the labour and abstinence of themselves or their ancestors, 
compensation is due to them on that ground ; even if otherwise, 
it is still due on the ground of prescript!.on. Nor can it ever be 
necessary for accomphshing an object by which the community 
altogether will gain, that a particular portion of the community 
should be immolated. When the property is of a kind to which 
pecuHar affections attach themselves, the compensation ought to 
exceed a bare pecuniary equivalent. But, subject, to this proviso, 
the state is at liberty to deal with landed property as the general 
interests of the community may require, even to the extent, if it 
so happen, of doing with the whole, what is done with a part when- 
ever a bill is passed for a railroad or a new street. ^^ The com- 
munity has too much at stake in the proper cultivation of the land, 
and in the conditions annexed to the occupancy of it, to leave 
these things to the discretion of a class of persons called landlords, 
when they have shown themselves unfit for the trust. The legisla- 
ture, which if it pleased might convert the whole body of landlords 
into fundholders or pensioners, might, a fortiori, commute the 
average receipts ot Irish landowners into a fixed rent charge, and 
raise the tenants into proprietors ; supposing always ^ that the full 
market value of the land was tendered to the landlords, in case they 
preferred that to accepting the conditions proposed. 

There will be another place for discussing the various modes of 
landed property and tenure, and the advantages and inconveniences 
of each ; in this chapter our concern is with the right itself, the 
grounds which justify it, and {SiS a corollary from these) the condi- 
tions by which it should be limited. To me it seems almost an 
axiom that property in land should be interpreted strictly, and that 
the balance in all cases of doubt should incHne against the proprietor. 
The reverse is the case with property in moveables, and in all things 
the product of labour ; over these, the owner's power both of use 
and ot exclusion should be absolute, except where positive evil 

^ [In the 3rd ed. the following passage of the original was here omitted : 
** I do not pretend that occasions can often arise on which so drastic a measure 
would be fit to be taken into serious consideration. But even if this ultimate 
prerogative of the state should never require to be actually exercised, it ought 
nevertheless to be asserted, because the principle which permits the greater of 
two things permits the less, and though to do all which the principle would 
sanction should never be advisable, to do much less than all not only may be 
so, but often is so in a very high degree." ] 

2 [The parenthesis " (without which these acts would be nothing better 
than robbery) " was omitted from the 3rd ed. (1852).] 



PROPERTY IN LAND 235 

to others would result from it : but in the case of land, no exclusive 
right should be permitted in any individual, which cannot be shown 
to be productive of positive good. To be allowed any exclusive 
right at all, over a portion of the common inheritance, while there 
are others who have no portion, is already a privilege. No quantity 
of moveable goods which a person can acquire by his labour, prevents 
others from acquiring the like by the same means ; but from the 
very nature of the case, whoever owns land, keeps others out of the 
enjoyment of it. The privilege, or monopoly, is only defensible as a 
necessary evil ; it becomes an injustice when carried to any point 
to which the compensating good does not follow it. 

For instance, the exclusive right to the land for purposes of 
cultivation does not imply an exclusive right to it for purposes 
of access ; and no such right ought to be recognised, except to the 
extent necessary to protect the produce against damage, and the 
owner's privacy against invasion. The pretension of two Dukes 
[1848] to shut up a part of the Highlands, and exclude the rest of 
mankind from many square miles of mountain scenery to prevent 
disturbance to wild animals, is an abuse ; it exceeds the legitimate 
boimds of the right of landed property. When land is not intended 
to be cultivated, no good reason can in general be given for its being 
private property at all ; and if any one is permitted to call it his, 
he ought to know that he holds it by sufierance of the community, and 
on an imphed condition that his ownership, since it cannot possibly 
do them any good, at least shall not deprive them of any, which 
they could have derived from the land if it had been unappropriated. 
Even in the case of cultivated land, a man whom, though only one 
among millions, the law permits to hold thousands of acres as his 
single share, is not entitled to think that all this is given to him 
to use and abuse, and deal with as if it concerned nobody but himself. 
The rents or profits which he can obtain from it are at his sole dis- 
posal ; but with regard to the land, in everything which he does 
with it, and in everything which he abstains from doing, he is morally 
bound, and should whenever the case admits be legally compelled, 
to make his interest and pleasure consistent with the public good. 
The species at large still retains, of its original claim to the soil of 
the planet which it inhabits, as much as is compatible with^the 
purposes for which it has parted with the remainder. 

§ 7. Besides property in the produce of labour, and property 
in landj there are other things which are or have been subjects of 



236 BOOR II. CHAPTER II. § 7 

property, in which no proprietary rights ought to exist at all. But 
as the civilized world has in general made up its mind on most 
of these, there is no necessity for dwelling on them in this place. 
At the head of them, is property in human beings. It is almost 
superfluous to observe, that this institution can have no place in 
any society even pretending to be founded on justice, or on fellow- 
ship between human creatures. But, iniquitous as it is, yet when 
the state has expressly legalized it, and human beings for generation^ 
have been bought, sold, and inherited under sanction of law, it is 
another wrong, in aboHshing the property, not to make full compen- 
sation. This wrong was avoided by the great measure of justice 
in 1833, one of the most virtuous acts, as well as the most practically 
beneficent, ever done collectively by a nation. Other examples of 
property which ought not to have been created are properties in 
pub He trusts ; such as judicial offices under the old French regime, 
and the heritable jurisdictions which, in countries not wholly 
emerged from feudality, pass with the land. Our own country 
affords, as cases in point, that of a commission in the army [1848], 
and of an advowson, or right of nomination to an ecclesiastical 
benefice. A property is also sometimes created in a right of taxing 
the public ; in a monopoly, for instance, or other exclusive privilege. 
These abuses prevail most in semibarbarous countries, but are not 
without example in the most civilized. In France there are 
[1848] several important trades and professions, including notaries, 
attorneys, brokers, appraisers, printers, and (until lately) ^ bakers and 
butchers, of which the numbers are limited by law. The hrevet 
or privilege of one of the permitted number consequently brings a 
high price in the market. When such is the case, compensation 
probably could not with justice be refused, on the aboUtion of the 
privilege. There are other cases in which this would be more doubt- 
ful. The question would turn upon what, in the peculiar circum- 
stances, was sufficient to constitute prescription ; and whether 
the legal recognition which the abuse had obtained, was sufficient 
to constitute it an institution, or amounted only to an occasional 
licence. It would be absurd to claim compensation for losses caused 
by changes in a tariff, a thing confessedly variable from year to year ; 
or for monopolies like those granted to individuals by the Tudors, 
favours of a despotic authority, which the power that gave was 
competent at any time to recall. 

i [Parenthesis added in 6th ed. (1862).] 



PROPERTY IN LAND 237 

So mucli on the institution of property , a subject of which, for 
the purposes of political economy, it was indispensable to treat, 
but on which we could not usefully confine ourselves to economical 
considerations. We have now to inquire on what principles and 
with what results the distribution of the produce of land and labour 
is effected, under the relations which this institution creates among 
the different members of the community. 



CHAPTER III 

OF THE CLASSES AMONG WHOM THE PKODUCS IS DISTRIBUTED 

§ 1. Private property being assumed as a fact, we have 
next to enumerate the different classes of persons to whom it gives 
rise : whose concurrence, or at least whose permission, is necessary 
to production, and who are therefore able to stipulate for a share of 
the produce. We have to inquire, according to what laws the pro- 
duce distributes itself among these classes, byTEe spontaneous action 
of theTnterests of those concerned i"£rfteirwhich7 a further question 
wiirbe, what effects are or mighiTbe produced by lawSj institutions, 
and measures of government, in superseding or modifying that 
spontaneous distribution. 

The three requisites of production, as has been so often repeated, 
are labour, capital,, and land : understanding by capital, the means 
and appliances which are the accumulated results of previous labour, 
and by land, the materials and instruments suppHed by nature, 
whether contained in the interior of the earth, or constituting its 
surface. Since each of these elements of production may be 
separately appropriated, the industrial community may be con- 
sidered as divided into landowners, capitahsts, and productive 
labourers. Each of these classes, as such, obtains a share of the 
produce : no other person or class obtains anything except by 
concession from them. The remainder of the community is, in fact, 
supported at their expense, giving, if any equivalent, one consisting 
of unproductive services. These three classes, therefore, ar e 
considered in pohtical economy a s making up the whole comm umty. 

§ 2. But although these three sometimes exist as separate 
cl^-sses, dividing the produce among them, they do not necessarily 
or always so exist. The fact is so much otherwise, that there are only 
one or two communities in which the complete separation of these 
classes is the general rule, England an4 Scotland, with part^ 



CLASSES WHO DIVIDE THE PRODUCE 239 

of Belgium and Holland, are almost the only countries in the world, 
where the land, capital, and labour employed in agriculture are 
generally the property of separate owners. The ordinary case is, 
that the same person owns either two of these requisites, or all three. 

The case in which the same person owns all three, embraces the 
two extremes of existing society, in respect to the independence and 
dignity of the labouring class. First, when the labourer himself is 
the proprietor. This is the commonest case in the Northern States 
of the American Union ; one of the commonest in France, Switzer- 
land, the three Scandinavian kingdoms, and parts of Germany ; * 
and a common case in parts of Italy and in Belgium. In all these 
countries there are, no doubt, large landed properties, and a still 
greater number which, without being large, require the occasional 
or constant aid of hired labourers. Much, however, of the land is 
owned in portions too small to require any other labour than that 
of the peasant and his family or fuUy to occupy even that. The 
capital employed is not always that of the peasant proprietor, many 
of these small properties being mortgaged to obtain the means 
of cultivating ; but the capital is invested at the peasant's risk, 
and though he pays interest for it, it gives to no one any right of 
interference, except, perhaps, eventually to take possession of the 
land, if the interest ceases to be paid. 

The other case in which the land, labour, and capital, belong 
to the same person, is the case of slave countries, in which the 

* " The Norwegian return " (say the Commissioners of Poor Law Enquiry, 
to whom information was furnished from nearly every country in Europe and 
America by the ambassadors and consuls there) " states that at the last census in 
1825, out of a population of 1,051,318 persons, there were 59,464 freeholders. 
As by 59,464 freeholders must be meant 59,464 heads of families, or about 
300,000 individuals, the freeholders must form more than a fourth of the whole 
population. Mr. Macgregor states that in Denmark (by which Zealand and 
the adjoining islands are probably meant) out of a population of 926,110, the 
number of landed proprietors and farmers is 415,110, or nearly one-half. In 
Sleswick-Holstein, out of a population of 604,085, it is 196,017, or about one- 
third. The proportion of proprietors and farmers to the whole population is 
not given in Sweden ; but the Stockholm return estimates the average quantity 
of land annexed to a labourer's habitation at from one to five acres ; and though 
the Gottenburg return gives a lower estimate, it adds that the peasants possess 
much of the land. In Wurtemburg we are told that more than two-thirds of 
the labouring population are the proprietors of their own habitations, and that 
almost all own at least a garden of from three-quarters of an acre to an acre 
and a half." In some of these statements, proprietors and farmers are not dis- 
criminated ; but " all the returns concur in stating the number of day-labourers 
to be very small." — {Preface to Foreign Communications, p. xxxviii.) As the 
general status of the labouring people, the condition of a workman for hire ia 
[1848] almost peculiar to Great Britain. 



UO BOOK II. CHAPTER HI. § 3 

labourers themselves are owned by the landowner. Our West India 
colonies before emancipation, and the sugar colonies of the nations 
by whom a similar act of justice is still unperformed [1848], are 
examples of large establishments for agricultural and manufacturing 
labour (the production of sugar and rum is a combination of both) 
in which the land, the factories (if they may be so called), the 
machinery, and the degraded labourers, are all the property of a 
capitalist. In this case, as well as in its extreme opposite, the case of 
the peasant proprietor, there is no division of the produce. 

§ 3. When the three requisites are not all owned by the same 
person, it often happens that two of them are so. Sometimes the 
same person owns the capital and the land, but not the labour. The 
landlord makes his engagement directly with the labourer, and sup- 
plies the whole or part of the stock necessary for cultivation. This 
system is the usual one in those parts of Continential Europe, in 
which the labourers are neither serfs on the one hand, nor proprietors 
on the other. It was very common in France before the Revolution, 
and is still much practised in some parts of that country, when the 
land is not the property of the cultivator. It prevails generally in 
the level districts of Italy, except those principally pastoral, such 
as the Maremma of Tuscany and the Campagna of Rome. On this 
system the division of the produce is between two classes, the 
landowner and the labourer. 

In other cases again, the labourer does not own the land, but 
owns the Httle stock employed on it, the landlord not being in 
the habit of supplying any. This system generally prevails [1848] 
in Ireland. It is nearly universal in India, and in most countries 
of the East ; whether the government retains, as it generally does, 
the ownership of the soil, or allows portions to become, either 
absolutely or in a qualified sense, the property of individuals. In 
India, however, things are so far better than in Ireland, that the 
owner of land is in the habit of .making advances to the cultivators, 
if they cannot cultivate without them. For these advances the 
native landed proprietor usually demands high interest ; but the 
principal landowner, the government, makes them gratuitously, 
recovering the advance after the harvest, together with the rent. 
The produce is here divided as before, between the same two classes, 
the landowner and the labourer. 

These are the principal variations in the classification of those 
among whom the produce of agricultural labour is distributed. In 



CLASSES WHO DIVIDE THE PRODUCE 241 

the case of manufacturing industry there never are more than two 
classes, the labourers and the capitalists. The original artisans 
in all countries were either slaves, or the women of the family. 
In the manufacturing establishments of the ancients, whether on 
a large or on a small scale, the labourers were usually the property 
of the capitalist. In general, if any manual labour was thought 
compatible with the dignity of a freeman, it was only agricultural 
labour. The converse system, in which the capital was owned 
by the labourer, was coeval with free labour, and under it the first 
great advances of manufacturing industry were achieved. The 
artisan owned the loom or the few tools he used, and worked on his 
own account ; or at least ended by doing so, though he usually 
worked for another, first as apprentice and next as journeyman, 
for a certain number of years, before he could be admitted a master. 
But the status of a permanent journeyman, all his life a hired labourer 
and nothing more, had no place in the crafts and guilds of the 
Middle Ages. In country villages, where a carpenter or a black- 
smith cannot five and support hired labourers on the returns of 
his business, he is even now his own workman ; and shopkeepers in 
similar circumstances are their own shopmen or shop women. But 
wherever the extent of the market admits of it, the distinction is 
now fully established between the class of capitalists, or employers 
of labour, and the class of labourers ; the capitalists, in general, 
contributing no other labour than that of direction and superin- 
tendence. 



CHAPTER IV 

OF COMPETITION AND CUSTOM 

§ 1. Under the rule of individual property, the division of 
the produce is the result of two determining agencies : Competition 
and Custom. It is important to ascertain the amount of influence 
which belongs to each of these causes, and in what manner the 
operation of one is modified by the other. 

Political economists generally, and English poHtical economists 
above others, have been accustomed to lay almost exclusive stress 
upon the first of these agencies ; to exaggerate the effect of com- 
petition, and to take into httle account the other and conflicting 
principle. They are apt to express themselves as if they thought 
that competition actually does, in all cases, whatever it can be 
shown to be the tendency of competition to do. This is partly 
intelligible, if we consider that only through the principle of com- _ 
petition has political economy any pretension__to_theL charactfil 
of a science".~"So far ai^rents, profits, wages, prices, are determined 
By" coiapetition, laws may be assigned for them. Assume com- 
petition to be their exclusive regulator, and principles of broad 
generality and scientific precision may be laid down, according to 
which they will be regulated. The political economist justly 
deems this his proper business : and as an abstract or hypothetical 
science, political economy cannot be required to do, and indeed cannot 
do, anything more. But it would be a great misconception of the 
actual course of human affairs, to suppose that competition exercises 
in fact this unlimited sway. I am not speaking of monopolies, 
either natural or artificial, or of any interferences of authority with 
the Hberty of production or exchange. Such disturbing causes 
have always been allowed for by political economists. I speak 
of cases in which there is nothing to restrain competition ; no 
hindrance to it either in the nature of the case or in artificial ob- 
stacles ; yet in which the result is not determined by competition, 



COMPETITION AND CUSTOM 243 

but by custom or usage ; competition either not taking place at alj, 
or producing its effect in quite a different manner from that which 
is ordinarily assumed to be natural to it. 

§ 2. Competition, in fact, has only become in any considerable 
degree the governing principle of contracts, at a comparatively 
modern period. The farther we look back into history, the more 
we see all transactions" and engagements under the influence of 
fixed customs. The reason is evident. Custom is the most powerful 
protector of the weak against the strong : their sole protector where 
there are no laws or government adequate to the purpose. Custom 
is a barrier which, even in the most oppressed condition of mankind, 
tyranny is forced in some degree to respect. To the industrious 
population, in a turbulent military community, freedom of com- 
petition is a vain phrase ; they are never in a condition to make 
terms for themselves by it : there is always a master who throws 
his sword into the scale, and the terms are such as he imposes. 
But though the law of the strongest decides, it is not the interest 
nor in general the practice of the strongest to strain that law to the 
utmost, and every relaxation of it has a tendency to become a 
custom, and every custom to become a right. Eights thus originat- 
ing, and not competition in any shape, determine, in a rude state 
of society, the share of the produce enjoyed by those who produce 
it. The relations, more especially, between the landowner and 
the cultivator, and the payments made by the latter to the former, 
are, in all states of society but the most modern, determined by 
the usage of the country. Never until late times have the con- 
ditions of the occupancy of land been (as a general rule) an affair 
of competition. The occupier for the time has very commonly 
been considered to have a right to retain his holding, while he 
fulfils the customary requirements ; and has thus become, in a 
certain sense, a co-proprietor of the soil. Even where the holder 
has not acquired this fixity of tenure, the terms of occupation 
have often been fixed and invariable. 

In India, for example, and other Asiatic communities similarly 
constituted, the ryots, or peasant-farmers, are not regarded as 
tenants at will, nor even as tenants by virtue of a lease. In most 
villages there are indeed some ryots on this precarious footing, 
consisting of these, or the descendants of those, who have settled 
in the place at a known and comparatively recent period : but all 
who are looked upon as descendants or representatives of the original 



244 BOOK ir. CHAPTER IV. § 2 

inhabitants, and even many mere tenants of ancient date, are 
thought entitled to retain their land, as long as they pay the custo- 
mary rents. What these customary rents are, or ought to be, has 
indeed, in most cases, become a matter of obscurity ; usurpation, 
tyranny, and foreign conquest having to a great degree obliterated 
the evidences of them. But when an old and purely Hindoo prin- 
cipality falls under the dominion of the British Government, or 
the management of its officers, and when the details of the revenue 
system come to be inquired into, it is usually found that though the 
demands of the great landholder, the State, have been swelled by 
fiscal rapacity until all limit is practically lost sight of, it has yet 
been thought necessary to have a distinct name and a separate 
pretext for each increase of exaction ; so that the demand has 
sometimes come to consist of thirty or forty different items, in 
addition to the nominal rent. This circuitous mode of increasing 
the payments assuredly would not have been resorted to, if there 
had been an acknowledged right in the landlord to increase the rent. 
Its adoption is a proof that there was once an effective limitation, 
a real customary rent ; and that the understood right of the ryot to 
the land, so long as he paid rent according to custom, was at some 
time or other more than nominal.* The British Government of 
India always simplifies the tenure by consolidating the various 
assessments into one, thus making the rent nominally as well as 
really an arbitrary thing, or at least a matter of specific agreement : 
but it scrupulously respects the right of the ryot to the land, though 
until the reforms of the present generation (reforms even now 
only partially carried into effect) it seldom left him much more than 
a bare subsistence.^ 

In modern Europe the cultivators have gradually emerged from 
a state of personal slavery. The barbarian conquerors of the 
Western Empire found that the easiest mode of managing their 
conquests would be to leave the occupation of the land in the hands 
in which they found it, and to save themselves a labour so uncon- 
genial as the superintendence of troops of slaves, by allowing the 
slaves to retain in a certain degree the control of their own actions, 
under an obligation to furnish the lord with provisions and labour. 

* The ancient law books of the Hindoos mention in some cases one-sixth, 
in others one-fourth of the produce, as a proper rent ; but there is no evidence 
that the rules laid down in those books were, at any period of history, really 
acted upon. 

1 [So since the 6th ed. (1865). The original (1848) ran : " though it seldom 
leaves him much more than a bare subsistence."] 



COMPETITION AND CUSTOM 245 

A common expedient was to assign to the serf, for his exclusive 
use, as much land as was thought sufficient for his support, and to 
make him work on the other lands of his lord whenever required. 
By degrees these indefinite obligations were transformed into a 
definite one, of supplying a fixed quantity of provisions or a fixed 
quantity of labour : and as the lords, in time, became incHned to 
employ their income in the purchase of luxuries rather than in the 
maintenance of retainers, the payments in kind were commuted for 
payments in money. Each concession, at first voluntary and 
revocable at pleasure, gradually acquired the force of custom, and 
was at last recognised and enforced by the tribunals. In this manner 
the serfs progressively rose into a free tenantry, who held their 
land in perpetuity on fixed conditions. The conditions were 
sometimes very onerous, and the people very miserable. But their 
obHgations were determined by the usage or law of the country, 
and not by competition. 

Where the cultivators had never been, strictly speaking, in 
personal bondage, or after they had ceased to be so, the exigencies of a 
poor and little advanced society gave rise to another arrangement, 
which in some parts of Europe, even highly improved parts, has 
been found sufficiently advantageous to be continued to the present 
day. I speak of the naetayer system. Under this, the land is 
divided, in small farms, among single famihes, the landlord generally 
supplying the stock which the agricultural system of the country 
is considered to require, and receiving, in heu of rent and profit. 
a fixed proportion of the produce. This proportion, which is 
generally paid in kind, is usually, (as is implied in the words metayer ^ 
mezzaiuolOj and medietarius,) one-half. There are places, however, 
such as the rich volcanic soil of the province of Naples, where the 
landlord takes two-thirds, and yet the cultivator by means of an 
excellent agriculture contrives to live. But whether the proportion 
is two-thirds or one-half, it is a fixed proportion, not variable 
from farm to farm, or from tenant to tenant. The custom of the 
country is the universal rule ; nobody thinks of raising or lowering 
rents, or of letting land on other than the customary conditions. 
Competition, as a regulator of rent, has no existence. 

§ 3. Prices, whenever there was no monopoly, came earlier 
under the influence of competition, and are much more universally 
subject to it, than rents : but that influence is by no means, even 
in the present activity of mercantile competition, so absolute as is 



246 BOOK II. CHAPTER IV. § 3 

sometimes assumed. There is no proposition which meets us in 
the field of political economy oftener than this — that there cannot 
be two prices in the same market. Such undoubtedly is the natural 
effect of unimpeded competition ; yet every one knows that there 
are, almost always,^ two prices in the same market. Not only are 
there in every large town, and in almost every trade, cheap shops 
and dear shops, but the same shop often sells the same article at 
different prices to different customers : and, as a general rule, 
each retailer adapts his scale of prices to the class of customers 
whom he expects. The wholesale trade, in the great articles of 
commerce, is really under the dominion of competition. There, the 
buyers as well as sellers are traders or manufacturers, and their 
purchases are not influenced by indolence or vulgar finery, nor 
depend on the smaller motives of personal convenience, but are 
business transactions. In the wholesale markets therefore it is true, 
as a general proposition, that there are not two prices at one time 
for the same thing : there is at each time and place a market price, 
which can be quoted in a price-current. But retail price, the price 
paid by the actual consumer, seems to feel very slowly and imper- 
fectly the effect of competition ; and when competition does exist, 
it often, instead of lowering prices, merely divides the gains of the 
high price among a greater number of dealers. Hence it is that, 
of the price paid by the consumer, so large a proportion is absorbed 
by the gains of retailers ; and any one who inquires into the amount 
which reaches the hands of those who made the things he buys, 
will often be astonished at its smallness. When indeed the market, 
being that of a great city, holds out a sufficient inducement to large 
capitalists to engage in retail operations, it is generally found a 
better speculation to attract a large business by underselHng others, 
than merely to divide the field of employment with them. This 
influence of competition is making itself felt more and more through 
the principal branches of retail trade in the large towns ; and the 
rapidity and cheapness of transport, by making consumers less 
dependent on the dealers in their immediate neighbourhood, are 
tending to assimilate more and more the whole country to a large 
town ; but hitherto [1848] it is only in the 'great centres of 
business that retail transactions have been chiefly, or even much, 
determined, by competition. Elsewhere it rather acts, when it 
acts at all, as an occasional disturbing influence ; the habitual 
regulator is custom, modified from time to time by notions existing 
^ [Substituted in the 3rd ed. (1852) for the original " very often."] 



COMPETITIOisr AND CUSTOM 24t 

in the minds of purchasers and sellers of some kind of equity or 
justice. 

In many trades the terms on which business is done are a matter 
of positive arrangement among the trade, who use the means they 
always possess of making the situation of any member of the body, 
who departs from its fixed customs, inconvenient or disagreeable. 
It is well known that the bookselKng trade was, until lately, one of 
these, and that notwithstanding the active spirit of rivalry in the 
trade, competition did not produce its natural effect in breaking 
down the trade rules. ^ All professional remuneration is regulated 
by custom. The fees of physicians, surgeons, and barristers, the 
charges of attorneys, are nearly invariable. Not certainly for want 
of abundant competition in those professions, but because the 
competition operates by diminishing each competitor's chance of 
fees, not by lowering the fees themselves. 

Since custom stands its ground against competition to so con- 
siderable an extent, even where, from the multitude of competitors 
and the general energy in the pursuit of gain, the spirit of competition 
is strongest, we may be sure that this is much more the case where 
people are content with smaller gains, and estimate their pecuniary 
interest at a lower rate when balanced against their ease or their 
pleasure. I beHeve it will often be found, in Continental Europe, 
that prices and charges, of some or of all sorts, are much higher ia 
some places than in others not far distant, without its being possible 
to assign any other cause than that it has always been so : the 
customers are used to it, and acquiesce in it. An enterprising 
competitor, with sufficient capital, might force down the charges, 
and make his fortune during the process ; but there are no enter- 
prising competitors ; those who have capital prefer to leave it 
where it is, or to make less profit by it in a more quiet way 

These observations must be received as a general correction to 
be applied whenever relevant, whether expressly mentioned or not, 
to the conclusions contained in the subsequent portions of this 
treatise. Our reasonings must, in general, proceed as if the known 
and natural effects of competition were actually produced by it, in 
all cases in which it is not restrained by some positive obstacle. 
Where competition, though free to exist, does not exist, or where it 
exists, but has its natural consequences overruled by any other 
agency, the conclusions will fail more or less of being applicable. 

^ [Until the 4th ed. (1857) the text ran : " the bookselling trade is one of 
these . . . competition does not produce " &c.] 



248 BOOK II. CHAPTER IV. § 3 

To escape error, we ought, in applying the conclusions of political 
economy to the actual affairs of life, to consider not only what will 
happen supposing the maximum of competition, but how far the 
result will be affected if competition falls short of the maximum. 

The states of economical relation which stand first in order to 
be discussed and appreciated, are those in which competition has 
no part, the arbiter of transactions being either brute force or 
established usage . These will be the sub j ect of the next four chapters . 



CHAPTER V 

OP SLAVERY 

§ 1. Among the forms which society assumes under the in- 
fluence of the institution of property, there are, as I have already 
remarked, two, otherwise of a widely dissimilar character, but 
resembling in this, that the ownership of the land, the labour, and 
the capital, is in the same hands. One of these cases is that of 
slavery, the other is that of peasant proprietors. In the one the 
landowner owns the labour, in the other the labourer owns the land. 
We begin with the first. 

In this system all the produce belongs to the landlord. The 
food and other necessaries of his labourers are part of his expenses. 
The labourers possess nothing but what he thinks fit to give them, 
and until he thinks fit to take it back : and they work as hard as he 
chooses, or is able, to compel them. Their wretchedness is only 
limited by his humanity, or his pecuniary interest. "With the first 
consideration we have on the present occasion nothing to do. What 
the second in so detestable a constitution of society may dictate, 
depends on the facihties for importing fresh slaves. If full-grown, 
able-bodied slaves can be procured in sufficient numbers, and 
imported at a moderate expense, self-interest will recommend working 
the slaves to death, and replacing them by importation, in preference 
to the slow and expensive process of breeding them. Nor are the 
slave-owners generally backward in learning this lesson. It is 
notorious that such was the practice in our slave colonies, while the 
slave trade was legal ; and it is said to be so still in Cuba.^ 

When, as among the ancients, the slave-market could only be 
supplied by captives either taken in war, or kidnapped from thinly 
scattered tribes on the remote confines of the known world, it was 

* [The original text ran on : " and in those States of the American Union 
which receive a regular supply of negroes from other States." These latter words 
were omitted from the 4th ed. (1857).] 



250 BOOK II. CHAPTER V. § 2 

generally more profitable to keep up tlie number by breeding, which 
necessitates a far better treatment of them ; and for this reason, 
joined with several others, the condition of slaves, notwithstanding 
occasional enormities, was probably much less bad in the ancient 
world, than in the colonies of modern nations. The Helots are 
usually cited as the type of the most hideous form of personal 
slavery, but with how little truth appears from the fact that they 
were regularly armed (though not with the panoply of the hoplite) 
and formed an integral part of the military strength of the State. 
They were doubtless an inferior and degraded caste, but their slavery 
seems to have been one of the least onerous varieties of serfdom. 
Slavery appears in far more frightful colours among the Eomans, 
during the period in which the Eoman aristocracy was gorging 
itself with the plunder of a newly-conquered world. The Eomans 
were a cruel people, and the worthless nobles sported with the lives 
of their myriads of slaves with the same reckless prodigality with 

f which they squandered any other part of their ill-acquired possessions. 

^Yet, slavery is divested of one of its worst features when it is 
compatible with hope : enfranchisement was easy and common : 
enfranchised slaves obtained at once the full rights of citizens, and 
instances were frequent of their acquiring not only riches, but 
latterly even honours. By the progress of milder legislation under 
the Emperors, much of the protection of law was thrown round the 
slave ; he became capable of possessing property ; and the evil 
altogether assumed a considerably gentler aspect. Until, however, 
slavery assumes the mitigated form of villenage, in which not only 
the slaves have property and legal rights, but their obligations are 
more or less limited by usage, and they partly labour for their own 
benefit ; their condition is seldom such as to produce a rapid 
growth either of population or of production.^ 

§ 2. So long as slave countries are underpeopled in proportion 
to their cultivable land, the labour of the slaves, under any tolerable 

* [" Or of production " was added in the 3rd ed. (1852), and the following 
passage of the original omitted : " This " (i.e. slow growth of population) " cannot 
be from physical privation, for no slave-labourers are worse fed, clothed, or 
lodged, than the free peasantry of Ireland. The cause usually assigned is the 
great disproportion of the sexes which almost always exists where slaves are not 
bred but imported ; this cannot however be the sole cause, as the negro population 
of our West India colonies continued nearly stationary, after the slave-trade 
to those colonies was suppressed. Whatever be the causes, a slave population 
is seldom a rapidly increasing one." The text of the next sentence was slightly 
readjusted.] 



SLAVERY 251 

management, produces much more than is sufficient for their 
support ; especially as the great amount of superintendence which 
their labour requires, preventing the dispersion of the population, 
insures some of the advantages of combined labour. Hence, in 
a good soil and cHmate, and with reasonable care of his own interests, 
the owner of many slaves has the means of being rich. The influence, 
however, of such a state of society on production is perfectly well 
understood. It is a truism to assert, that labour extorted by fear 
of punishment is inefficient and unproductive. It is true that in 
some circumstances human beings can be driven by the lash to 
attempt, and even to accompHsh, things which they would not 
have undertaken for any payment which it could have been worth 
while to an employer to offer them. And it is Hkely that productive 
operations which require much combination of labour, the pro- 
duction of sugar for example, would not have taken place so soon 
in the American colonies if slavery had not existed to keep masses 
of labour together. There are also savage tribes so averse from 
regular industry, that industrial life is scarcely able to introduce 
itself among them until they are either conquered and made slaves 
of, or become conquerors and make others so. But after allowing 
the full value of these considerations, it remains certain that slavery 
is incompatible with any high state of the arts of Hfe, and any great 
efficiency of labour. For all products which require much skill, slave 
countries are usually^ dependent on foreigners. Hopeless slavery 
effectually brutifies the intellect ; and intelUgence in the slaves, 
though often encouraged in the ancient world and in the East, is 
in a more advanced state of society a source of so much danger 
and an object of so much dread to the masters, that in some of the 
States of America it was a highly penal offence to teach a slave 
to read.? All processes carried on by slave labour are conducted 
in the rudest and most unimproved manner. And even the animal 
strength of the slave is, on an average, not half exerted. The 
unproductiveness and wastefulness of the industrial system in the 
Slave States is instructively displayed in the valuable writings 
of Mr. Olmsted.^ The mildest form of slavery is certainly the 
condition of the serf, who is attached to the soil, supports himself 
from his allotment, and works a certain number of days in the 
week for his lord. Yet there is but one opinion on the extreme 

1 [" Usually " replaced " always " in the 3rd ed. (1852).] 

2 [Until the 6th ed. (1865) the reference was vague : " in some countries 
it is." In the 7th ed. (1871) " is " became " was."] 

2 [This sentence was inserted in the 6th ed.] 



252 BOOK II. CHAPTER V. § 2 

inefficiency of serf labour. The following passage is from Professor 
Jones,^ whose Essay on the Distribution of Wealth (or rather on 
Rent), is a copious repertory of valuable facts on the landed tenures 
of different countries. 

*'' The Russians, or rather those German writers who have observed 
the manners and habits of Russia, state some strong facts on this 
point. Two Middlesex mowers, they say, will mow in a day as 
much grass as six Russian serfs, and in spite of the dearness of 
provisions in England and their cheapness in Russia, the mowing 
a quantity of hay which would cost an EngHsh farmer half a copeck, 
will cost a Russian proprietor three or four copecks.f The Prussian 
counsellor of state, Jacob, is considered to have proved, that in Russia, 
where everything is cheap, the labour of a serf is doubly as expensive 
as that of a labourer in England. M. Schmalz gives a starthng 
account of the unproductiveness of serf labour in Prussia, from 
his own knowledge and observation. J In Austria, it is distinctly 
stated that the labour of a serf is equal to only one-third of that 
of a free hired labourer. This calculation, made in an able work 
on agriculture (with some extracts from which I have been favoured), 
is applied to the practical purpose of deciding on the number of 
labourers necessary to cultivate an estate of a given magnitude. 
So palpable, indeed, are the ill effects of labour rents on the industry 
of the agricultural population, that in Austria itself, where proposals 
of changes of any kind do not readily make their, way, schemes 
and plans for the commutation of labour rents are as popular as 
in the more stirring German provinces of the North." § 

What is wanting in the quahty of the labour itself, is not made 
up by any excellence in the direction and superintendence. As 
the same writer || remarks, the landed proprietors " are necessarily, 
in their character of cultivators of their own domains, the only 
guides and directors of the industry of the agricultural population," 
since there can be no intermediate class of capitalist farmers where 

* Essay on the Distribution of Wealth and on the Sources of Taxation. By the 
Rev. Richard Jones. Page 50. [P. 43 of the reprint published, in 1895 under 
the title Peasant Rents.] 

f " Schmalz, Ecohomie Politique, French translation, vol. i. p. 66." 

X " Vol. ii. p. 107." 

§ The Hungarian revolutionary government, during its brief existence, 
bestowed on that country one of the greatest benefits it could receive, and one 
which the tyranny that succeeded did not dare to take away : it freed the 
peasantry from what remained of the bondage of serfdom, the labour rents ; 
decreeing compensation to the landlords at the expense of the state, and not at 
that of the Hberated peasants. 

II Jones, pp. 53, 54. [Peasant Rents, pp. 46, 47.] 



SLAVERY 253 

the labourers are the property of the lord. Great landowners are 
everywhere an idle class, or if they labour at all, addict themselves 
only to the more exciting kinds of exertion ; that lion's share which 
superiors always reserve for themselves. " It would," as Mr. Jones 
observes, " be hopeless and irrational to expect, that a race of noble 
proprietors, fenced round with privileges and dignity, and attracted 
to military and political pursuits by the advantages and habits of 
their station, should ever become attentive cultivators as a body." 
Even in England, if the cultivation of every estate depended upon its 
proprietor, any one can judge what would be the result. There 
would be a few cases of great science and energy, and numerous 
individual instances of moderate success, but the general state of 
agriculture would be contemptible. 

§ 3. Whether the proprietors themselves would lose by the 
emancipation of their slaves, is a different question from the com- 
parative effectiveness of free and slave labour to the community. 
There has been much discussion of this question as an abstract 
thesis ; as if it could possibly admit of any universal solution. 
Whether slavery or free labour is most profitable to the employer, 
depends on the wages of the free labourer. These, again, depend 
on the numbers of the labouring population, compared with the 
capital and the land. Hired labour is generally so much more 
efficient than slave labour, that the employer can pay a considerably 
greater value in wages, than the maintenance of his slaves cost 
him before, and yet be a gainer by the change : but he cannot do 
this without Hmit. The decline of serfdom in Europe, and its 
destruction in the Western nations, were doubtless hastened by the 
changes which the growth of population must have made in the 
pecuniary interests of the master. As population pressed harder 
upon the land, without any improvement in agriculture, the main- 
tenance of the serfs necessarily became more costly, and their 
labour less valuable. With the rate of wages such as it is in Ireland, 
or in England (where, in proportion to its efficiency, labour is quite 
as cheap as in Ireland), no one can for a moment imagine that 
slavery could be profitable. If the Irish peasantry were slaves, 
their masters would be as wiUing, as their landlords now [1848] 
are, to pay large sums merely to get rid of them. In the rich and 
underpeopled soil of the West India islands, there is just as httle 
doubt that the balance of profits between free and slave labour 
was greatly on the side of slavery, and that the compensation 



254 BOOK II. CHAPTER V. § 3 

granted to the slave-owners for its abolition was not more, perhaps 
even less,^ than an equivalent for their loss. 

More needs not be said here on a cause so completely judged and 
decided as that of slavery. ^ its demerits are no longer a question 
requiring argument ; though the temper of mind manifested by the 
larger part of the influential classes in Great Britain respecting the 
struggle in America, shows how grievously the feelings of the present 
generation [1865] of Enghshmen, on this subject, had fallen behind 
the positive acts of the generation which preceded them. That 
the sons of the deUverers of the West Indian Negroes should expect 
with complacency, and encourage by their sympathies, the estab- 
Hshment of a great and powerful military commonwealth, pledged 
by its principles and driven by its strongest interests to be the armed 
propagator of slavery through every region of the earth into which 
its power could penetrate, discloses a mental state in the leading 
portion of our higher and middle classes which it is melancholy 
to see, and will be a lasting blot in EngHsh history. Fortunately 
they stopped short of actually aiding, otherwise than by words, the 
nefarious enterprise to which they were not ashamed of wishing 
success ; and at the expense of the best blood of the Free StateSj 
but to their immeasurable elevation in mental and moral worth, 

1 [" In all probability less," until tbe 5th ed. (1862).] 

2 [The rest of the paragraph as here found was written for the 6th ed. (1865). 
The original (1848) ran thus : " It will be curious to see how long the other 
nations possessing slave colonies will be content to remain behind England in 
a matter of such concernment both to justice, which decidedly is not at present 
a fashionable virtue, and to philanthropy, which certainly is so. Europe is 
far more inexcusable than America in tolerating an enormity, of which she 
could rid herself with so much greater ease. I speak of negro-slavery, not ol 
the servage of the Slavonic nations, who have not yet advanced beyond a state 
of civilization corresponding to the age of villenage in Western Europe, and 
can only be expected to emerge from it in the same gradual manner, however 
much accelerated by the salutary influence of the ideas of more advanced 
countries." 

To this, in the 2nd ed. (1849) was added the note : " Denmark has the honour 
of being the first Continental nation which followed the example of England ; 
and the emancipation of the slaves was one of the earliest acts of the French 
Provisional Government. Still more recently, the progress of the American 
mind towards a determination to rid itself of this odious stain has been mani- 
fested by very gratifying symptoms." 

In the 3rd ed. (1852) the latter part of the reference to the Slavonic nations 
was made to read : " who, to all appearance, will be indebted for their liberation 
from this great evil to the influence of the ideas of the more advanced countries, 
rather than to the rapidity of their own progress in improvement." In the 
note, "heroic and calumniated" was inserted before "French Provisional 
Government." In the 5th ed. (1862) the second sentence of the note was 
replaced by " The Dutch Government is now seriously engaged in the same 
beneficent enterprise."] 



SLAVERY 255 

the curse of slavery has been cast out from the great American 
repubhc, to find its last temporary refuge in Brazil and Cuba. No 
European country, except Spain alone, any longer participates in 
the enormity. Even serfage has now ceased to have a legal existence 
in Europe. Denmark has the honour of being the first Continental 
nation which imitated England in liberating its colonial slaves ; 
and the abohtion of slavery was one of the earhest acts of the heroic 
and calumniated Provisional Government of France. The Dutch 
Government was not long behind, and its colonies and dependencies 
are now, I believe without exception, free from actual slavery, 
though forced labour for the pubHc authorities is still [1865] a 
recognised institution in Java, soon, we may hope, to be exchanged 
lor complete personal freedom. 



CHAPTER VI 

OF PEASANT PR0PRIET0R8 

§ 1. In the regime of peasant properties, as in that of slavery, 
the whole produce belongs to a single owner, and the distinction 
of rent, profits, and wages, does not exist. In all other respects, the 
two states of society are the extreme opposites of each other. The 
one is the state of greatest oppression and degradation to the labour- 
ing class. The other is that in which they are the most uncontrolled 
arbiters of their own lot. 

The advantage, however, of small properties in land, is one of 
the most disputed questions in the range of political economy. On 
the Continent, though there are some dissentients from the prevailing 
opinion, the benefit of having a numerous proprietary population 
exists in the minds of most people in the form of an axiom. But 
English authorities are either unaware of the judgment of Continental 
agriculturists, or are content to put it aside, on the plea of their 
having no experience of large properties in favourable circumstances : 
the advantage of large properties being only felt where there are 
also large farms ; and as this, in arable districts, impUes a greater 
accumulation of capital than usually exists on the Continent, the 
great Continental estates, except in the case of grazing farms, are 
mostly let out for cultivation in small portions. There is some truth 
in this ; but the argument admits of being retorted ; for if the 
Continent knows Httle, by experience, of cultivation on a large 
scale and by large capital, the generality of English writers are no 
better acquainted practically with peasant proprietors, and have 
almost always the most erroneous ideas of their social condition 
and mode of Hfe. Yet the old traditions even of England are on the 
same side with the general opinion of the Continent. The " yeo- 
manry " who were vaunted as the glory of England while they 
existed, and have been so much mourned over since they disappeared, 
were either small proprietors or small farmers, and if they were mostly 



PEASANT PROPRIETORS 257 

the last, the character they bore for sturdy independence is the more 
noticeable. There is a part of England, unfortunately a very small 
part, where peasant proprietors are still [1848] common ; for such 
are the " statesmen " of Cumberland and Westmoreland, though 
they pay, I beheve, generally if not universally, certain customary 
dues, which, being fixed, no more affect their character of proprietor, 
than the land-tax does. There is but one voice, among those ac- 
quainted with the comitry, on the admirable effects of this tenure 
of land in those counties. No other agricultural population in 
England could have furnished the originals of Wordsworth's 
peasantry.* 

The general system, however, of English cultivation, affording 
no experience to render the nature and operation of peasant pro- 
perties famihar, and EngHshmen being in general profoundly 
ignorant of the agricultural economy of other countries, the very 
idea of peasant proprietors is strange to the Enghsh mind, and does 
not easily find access to it. Even the forms of language stand in 
the way : the famihar designation for owners of land being " land- 
lords," a term to which *' tenants " is always understood as a corre- 
lative. When, at the time of the famine, the suggestion of peasant 
properties as a means of Irish improvement found its way into 
parHamentary and newspaper discussions, there were writers of 

* In Mr. Wordsworth's little descriptive work on the scenery of the Lakes, 
he speaks of the upper part of the dales as having been for centuries " a perfect 
republic of shepherds and agriculturists, proprietors, for the most part, of the 
lands which they occupied and cultivated. The plough of each man was con- 
fined to the maintenance of his own family, or to the occasional accommodation 
of his neighbour. Two or three cows furnished each family with milk and 
cheese. The chapel was the only edifice that presided over these dwelHngs, 
the supreme head of this pure commonwealth ; the members of which existed 
in the midst of a powerful empire, hke an ideal society, or an organized com- 
munity, whose constitution had been imposed and regulated by the mountains 
which protected it. Neither high-bom nobleman, knight, nor esquire was here ; 
but many of these humble sons of the hills had a consciousness that the land 
which they walked over and tilled had for more than five hundred years been 
possessed by men of their name and blood . . . Corn was grown in these vales 
sufficient upon each estate to furnish bread for each family, no more. The 
storms and moisture of the climate induced them to sprinkle their upland pro- 
perty with outhouses of native stone, as places of shelter for their sheep, where 
in tempestuous weather, food was distributed to them. Every family spun 
from its own flock the wool with which it was clothed ; a weaver was here and 
there found among them, and the rest of their wants was supplied by the produce 
of the yarn, which they carded and spun in their own houses, and carried to 
market either under their arms or more frequently on packhorses, a small 
train taking their way weekly down the valley, or over the mountains, to the 
most commodious town." — A Description of the Scenery of the Lakes in the 
North of England, 3rd edit. pp. 50 to 53 and 63 to 65, 



258 BOOK IL CHAPTER VI. § 2 

pretension to wliom the word " proprietor " was so far from con- 
veying any distinct idea, that they mistook the small holdings of 
Irish cottier tenants for peasant properties. The subject being 
so little understood, I think it important, before entering into the 
theory of it, to do something towards showing how the case stands 
as to matter of fact ; by exhibiting, at greater length than would 
otherwise be admissible, some of the testimony which exists respect- 
ing the state of cultivation, and the comfort and happiness of the 
cultivators, in those countries and parts of countries, in which the 
greater part of the land has neither landlord nor farmer, other than 
the labourer who tills the soil, 

§ 2. I lay no stress on the condition of North America, where, 
as is well known, the land, except in the former Slave States,^ is 
almost universally owned by the same person who holds the plough. 
A country combining the natural fertility of America with the 
knowledge and arts of modern Europe, is so peculiarly circum- 
stanced, that scarcely anything, except insecurity of property or a 
tyrannical government, could materially impair the prosperity of 
the industrious classes. I might, with Sismondi, insist more strongly 
on the case of ancient Italy, especially Latium, that Campagna 
which then swarmed with inhabitants in the very regions which under 
a contrary regime have become uninhabitable from malaria. But 
I prefer taking the evidence of the same writer on things known 
to him by personal observation. 

"It is especially Switzerland," says M. de Sismondi, " which 
should be traversed and studied to judge of the happiness of peasant 
proprietors. It is from Switzerland we learn that agriculture prac- 
tised by the very persons who enjoy its fruits, suffices to procure 
great comfort for a very numerous population ; a great independence 
of character, arising from independence of position ; a great com- 
merce of consumption, the result of the easy circumstances of all the 
inhabitants, even in a coimtry whose cHmate is rude, whose soil is but 
moderately fertile, and where late frosts and inconstancy of seasons 
often bhght the hopes of the cultivator. It is impossible to see 
without admiration those timber houses of the poorest peasant, so 
vast, so well closed in, so covered with carvings. In the interior, 
spacious corridors separate the difierent chambers of the numerous 
family ; each chamber has but one bed, which is abundantly furnished 

^ [Substituted in the 7th ed. (1871) for "wherever free from the curse of, 
slavery."] 



PEASANT PROPRIETORS 259 

with curtainSj bedclothes, and the whitest linen ; carefully kept 
furniture surrounds it ; the wardrobes are filled with hnen ; the 
dairy is vast, well aired, and of exquisite cleanness ; under the same 
roof is a great provision of corn, salt meat, cheese and wood ; in the 
cow-houses are the finest and most carefully tended cattle in Europe ; 
the garden is planted with flowers, both men and women are cleanly 
and warmly clad, the women preserve with pride their ancient 
costume ; all carry in their faces the impress of health and strength. 
Let other nations boast of their opulence, Switzerland may always 
point with pride to her peasants." * 

The same eminent writer thus expresses his opinion on peasant 
proprietorship in general. 

" Wherever we find peasant proprietors, we also find the comfort, 
security, confidence in the future, and independence, which assure 
at once happiness and virtue. The peasant who with his children does 
all the work of his Httle inheritance, who pays no rent to any one 
above him, nor wages to any one below, who regulates his produc- 
tion by his consumption, who eats his own corn, drinks his own wine, 
is clothed in his own hemp and wool, cares Httle for the prices of the 
market ; for he has little to sell and little to buy, and is never ruined 
by revulsions of trade. Instead of fearing for the future, he sees 
it in the colours of hope ; for he employs every moment not required 
by the labours of the year, on something profitable to his children 
and to future generations. A few minutes' work suffices him to plant 
the seed which in a hundred years will be a large tree, to dig the 
channel which will conduct to him a spring of fresh water, to improve 
by cares often repeated, but stolen from odd times, all the species 
of animals and vegetables which surround him. His Httle patrimony 
is a true savings bank, always ready to receive all his Httle gains and 
utiHze aU his moments of leisure. The ever-acting power of nature 
retm^ns them a hundred-fold. The peasant has a Hvely sense of the 
happiness attached to the condition of a proprietor. Accordingly 
he is always eager to buy land at any price. He pays more for it 
than its value, more perhaps than it will bring him in ; but is he not 
right in estimating highly the advantage of having always an advan- 
tageous investment for his labour, without underbidding in the 
wages-market — of being always able to find bread, without the 
necessity of buying it at a scarcity price ? 

" The peasant proprietor is of aU cultivators the one who gets 
most from the soil, for he is the one who thinks most of the future, and 
• Etudes sur VEconomie FoliUguQ^ Essai III, 



260 BOOK IL CHAPTER VI. | 2 

who has been most instructed by experience. He is also the ond 
who employs the human powers to most advantage, because dividing 
his occupations among all the members of his family, he reserves 
some for every day of the year, so that nobody is ever out of work. 
Of all cultivators he is the happiest, and at the same time the land 
nowhere occupies, and feeds amply without becoming exhausted, 
so many inhabitants as where they are proprietors. Finally, of all 
cultivators the peasant proprietor is the one who gives most encour- 
agement to commerce and manufactures, because he is the richest." * 
This picture of unwearied assiduity, and what may be called 
affectionate interest in the land, is borne out in regard to the more 
intelhgent Cantons of Switzerland by EngHsh observers. " In 
walking anywhere in the neighbourhood of Zurich," says Mr. IngHs, 
" in looking to the right or to the left, one is struck with the extra- 
ordinary industry of the inhabitants ; and if we learn that a pro- 
prietor here has a return of ten per cent, we are inclined to say, ' he 
deserves it.* I speak at present of country labour, though I believe 
that in every kind of trade also, the people of Zurich are remarkable 
for their assiduity ; but in the industry they show in the cultivation 
of their land I may safely say they are unrivalled. When I used to 
open my casement between four and five in the morning to look out 
upon the lake and the distant Alps, I saw the labourer in the fields ; 
and when I returned from an evening walk, long after sunset, as late, 
perhaps, as half-past eight, there was the labourer mowing his grass, 
or tying up his vines. , . It is impossible to look at a field, a 
garden, a hedging, scarcely even a tree, a flower, or a vegetable, 
without perceiving proofs of the extreme care and industry that are 
bestowed upon the cultivation of the soil. If, for example, a path 

* And in another work [Nouveaux Principes d'Economie Politique, liv. iii. 
eh. 3,) he says : " When we traverse nearly the whole of Switzerland, and several 
provinces of France, Italy, and Germany, we need never ask, in looking at any 
piece of land, if it belongs to a peasant proprietor or to a farmer. The intelligent 
care, the enjoyments provided for the labourer, the adornment which the 
country has received from his hands, are clear indications of the former. It is 
true an oppressive government may destroy the comfort and brutify the intelli- 
gence which should be the result of property ; taxation may abstract the best 
produce of the fields, the insolence of government officers may disturb the 
security of the peasant, the impossibility of obtaining justice against a powerful 
neighbour may sow discouragement in his mind, and in the fine country which 
has been given back to the administration of the King of Sardinia, the pro- 
prietor, equally with the day-labourer, wears the livery of indigence." He was 
here speaking of Savoy, where the peasants were generally proprietors, and, 
according to aiuthentic accounts, extremely miserable. But, as M. de Sismondi 
continues, " it is in vain to observe only one of the rules of political economy j 
it cannot by itself suffice to produce good ; but at least it diminishes evil." 



PEASANT PRUPKIETORS 261 

leads through or by the side of a field of grain, the corn is not, as in 
England, permitted to hang over the path, exposed to be pulled or 
trodden down by every passer-by ; it is everywhere bounded by a 
fence, stakes are placed at intervals of about a yard, and, about two 
or three feet from the ground, boughs of trees are passed longitudin- 
ally along. If you look into a field towards evening, where there 
are large beds of cauUflower or cabbage, you will find that every 
single plant has been watered. In the gardens, which around 
Zurich are extremely large, the most punctiHous care is evinced in 
every production that grows. The vegetables are planted with 
seemingly mathematical accuracy ; not a single weed is to be seen, 
not a single stone. Plants are not earthed up as with us, but are 
planted in a small hollow, into each of which a Kttle manure is put, 
and each plant is watered daily. Where seeds are sown, the earth 
directly above is broken into the finest powder ; every shrub, every 
flower is tied to a stake, and where there is wall-fruit a trellice is 
erected against the wall, to which the boughs are fastened, and there 
is not a single thing that has not its appropriate resting place." * 

Of one of the remote valleys of the High Alps the same writer 
thus expresses himself. "j" 

" In the whole of the Engadine the land belongs to the peasantry, 
who, Hke the inhabitants of every other place where this state of 
things exists, vary greatly in the extent of their possessions. . . • 
Generally speaking, an Engadine peasant lives entirely upon the 
produce of his land, with the exception of the few articles of foreign 
growth required in his family, such as cofiee, sugar, and wine. Flax 
is grown, prepared, spun, and woven, without ever leaving his house. 
He has also his own wool, which is converted into a blue coat, with- 
out passing through the hands of either the dyer or the tailor. The 
country is incapable of greater cultivation than it has received. 
All has been done for it that industry and an extreme love of gain 
can devise. There is not a foot of waste land in the Engadine, the 
lowest part of which is not much lower than the top of Snowdon. 
Wherever grass will grow, there it is ; wherever a rock will bear a 
blade, verdure is seen upon it ; wherever an ear of rye will ripen, 
there it is to be found. Barley and oats have also their appropriate 
spots ; and wherever it is possible to ripen a little patch of wheat, the 
cultivation of it is attempted. In no country in Europe will be found 

* Switzerland, the South of France^ and the Pyrenees^ in 1830. By H. D, 
Inglis. Vol. i. ch. 2. 
t Ibid. ch. 8 and 10. 



262 BOOK II. CHAPTER VI. § 2 

so few poor as in the Engadine. In tlie village of Suss, whicli 
contains about six hundred inhabitants, there is not a single 
individual who has not wherewithal to Hve comfortably, not a 
single individual who is indebted to others for one morsel that he 
eats." 

Notwithstanding the general prosperity of the Swiss peasantry, 
this total absence of pauperism and (it may almost be said) of 
poverty, cannot be predicated of the whole country ; the largest 
and richest canton, that of Berne, being an example of the contrary ; 
for although, in the parts of it which are occupied by peasant pro- 
prietors, their industry is as remarkable and their ease and comfort 
as conspicuous as elsewhere, the canton is burthened with a numer- 
ous pauper population, through the operation of the worst regulated 
system of poor-law administration in Europe, except that of Eng- 
land before the new Poor Law.* Nor is Switzerland in some other 
respects a favourable example of all that peasant properties might 
effect. There exists a series of statistical accounts of the Swiss 
Cantons, drawn up mostly with great care and inteUigence, 
containing detailed information, of tolerably recent date, respecting 
the condition of the land and of the people. From these, the sub- 
division appears to be often so minute, that it can hardly be supposed 
not to be excessive : and the indebtedness of the proprietors in the 
flourishing canton of Zurich " borders," as the writer expresses it, 
" on the incredible ; " t so that " only the intensest industry, 
frugahty, temperance, and complete freedom of commerce enable 
them to stand their ground." Yet the general conclusion deducible 
from these books is that since the beginning of the century, and 
concurrently with the subdivision of many great estates which 
belonged to nobles or to the cantonal governments, there has been 

* [1852] There have been considerable changes in the Poor Law adminis- 
tration and legislation of the Canton of Berne since the sentence in the text 
was written. But I am not sufficiently acquainted with the nature and opera- 
tion of these changes to speak more particularly of them here. 

f " Eine an das unglaubliche granzende Schuldenmasse " is the expression. 
{Historisch-geographisch-statistische Gemdlde der Schweiz. Erster Theil. Der 
Kanton Zurich. Von Gerold Meyer von Knonau, 1834, pp. 80-81.) There 
are villages in Zurich, he adds, in which there is not a single property un- 
mortgaged. It does not, however, follow that each individual proprietor ia 
deeply involved because the aggregate mass of encumbrances is large. In the 
Canton of SchafEhausen, for instance, it is stated that the landed properties 
are almost all mortgaged, but rarely for more than one-half their registered 
value {Zwolfter Theil. Der Kanton Schaffliausen, von Edward Im-Thurn, 
1840, p. 52), and the mortgages are often for the improvement and enlargement 
of the estate. {Siebenzehnter Theil. Der Kanton Thiirgau, von J. A. Pupikofer, 
1837, p. 209.) 



PEASANT PROPRIETORS 263 

a striking and rapid improvement in almost every department of 
agricultmre, as well as in the houses, the habits, and the food of the 
people. The writer of the accomit of Thiirgau goes so far as to 
say, that since the subdivision of the feudal estates into peasant 
properties, it is not uncommon for a third or a fourth part of an 
estate to produce as much grain, and support as many head of 
cattle, as the whole estate did before.* 

§ 3. One of the countries in which peasant proprietors are of 
oldest date, and most numerous in proportion to the population, is 
Norway. Of the social and economical condition of that country 
an interesting account has been given by Mr. Laing. His testimony 
in favour of small landed properties both there and elsewhere, is 
given with great decision. I shall quote a few passages. 

" If small proprietors are not good farmers, it is not from the 
same cause here which we are told makes them so in Scotland — 
indolence and want of exertion. The extent to which irrigation is 
carried on in these glens and valleys shows a spirit of exertion and 
co-operation " (I request particular attention to this point), " to 
which the latter can show nothing similar. Hay being the principal 
winter support of Uve stock, and both it and corn, as well as potatoes, 
liable, from the shallow soil and powerful reflection of sunshine 
from the rocks, to be burnt and withered up, the greatest exertions 
are made to bring water from the head of each glen, along such a 
level as will give the command of it to each farmer at the head of his 
fields. This is done by leading it in wooden troughs (the half of a 
tree roughly scooped) from the highest perennial stream among the 
hills, through woods, across ravines, along the rocky, often per- 
pendicular, sides of the glens, and from this main trough giving a 
lateral one to each farmer in passing the head of his farm. He dis- 
tributes this supply by moveable troughs among the fields ; and at 
this season waters each rig successively with scoops like those used 
by bleachers in watering cloth, laying his trough between every 
two rigs. One would not beheve, without seeing it, how very large 
an extent of land is traversed expeditiously by these artificial showers. 
The extent of the main troughs is very great. In one glen I walked 
ten miles, and found it troughed on both sides : on one, the chain 
is continued down the main valley for forty miles.f Those may be 

* Thurgau, p. 72. 

t [1852] Reichensperger {Die Agrarfrage) quoted by Mr. Kay {Social Con- 
dition and Education of the People in England and Europe,) observes, " that 



264 BOOK II. CHAPTER VI. § 3 

bad farmers who do sucli things ; but they are not indolent, not 
ignorant of the principle of working in concert, and keeping up 
establishments for common benefit. They are undoubtedly, in 
these respects, far in advance of any community of cottars in our 
Highland glens. They feel as proprietors, who receive the ad- 
vantage of their own exertions. The excellent state of the roads 
and bridges is another proof that the country is inhabited by people 
who have a common interest to keep them under repair. There 
are no tolls." * 

On the effects of peasant proprietorship on the Continent gener- 
ally, the same writer expresses himself as follows.*)* 

"If we hsten to the large farmer, the scientific agriculturist, 
the " [Enghsh] " poHtical economist, good farming must perish 
with large farms ; the very idea that good farming can exist, unless 
on large farms cultivated with great capital, they hold to be absurd. 

the parts of Europe where the'most extensive and costly plans for watering the 
meadows and lands have been carried out in the greatest perfection, are those 
where the lands are very much subdivided, and are in the hands of small pro- 
prietors. He instances the plain round Valencia, several of the southern 
departments of France, particularly those of Vaucluse and Bouches du Rhone, 
Lombardy, Tuscany, the districts of Sienna, Lucca, and Bergamo, Piedmont, 
many parts of Germany, &c., in all which parts of Europe the land is very 
much subdivided among small proprietors. In all these parts great and ex- 
pensive systems and plans of general irrigation have been carried out, and are 
now being supported by the small proprietors themselves ; thus showing how 
they are able to accompHsh, by means of combination, work requiring the 
expenditure of great quantities of capital." Kay, i. 126. 

* Laing, Journal of a Residence in Norway, pp. 36, 37. [From the 3rd ed. 
(1852) was omitted the following further passage from Laing, quoted in the 
1st and 2nd : " It is, I am aware, a favourite and constant observation of our 
agricultural writers, that these small proprietors make the worst farmers. It 
may be so ; but a population may be in a wretched condition, although their 
country is very well farmed ; or they may be happy, although bad cultivators. 
. . . Good farming is a phrase composed of two words which have no more 
application to the happiness or well-being of a people than good weaving or 
good iron-founding. That the human powers should be well applied, and not 
misapplied, in the production of grain, or iron, or clothing, is, no doubt, an 
object of great importance ; but the happiness or well-being of a people does 
not entirely depend upon it. It has more effect on their numbers than on their 
condition. The producer of grain who is working for himself only, who is 
owner of his land, and has not a third of its produce to pay as rent, can afford 
to be a worse farmer by one-third, than a tenant, and is, notwithstanding, in 
a preferable condition. Our agricultural writers tell us, indeed, that labourers 
in agriculture are much better off as farm-servants than they would be as 
small proprietors. We have only the master's word for this. Ask the servant. 
The colonists told us the same thing of their slaves. If property is a good and 
desirable thing, I suspect that the smallest quantity of it is good and desirable ; 
and that the state of society in which it is most widely diffused is the best 
constituted."] 

f Notes of a Traveller, pp. 299 et seqq. 



PEASANT PHOPRlETOttS 265 

Draining, manuring; economical arrangement, cleaning the land, 
regular rotations, valuable stock and implements, all belong ex- 
clusively to large farms, worked by large capital, and by hired labour. 
This reads very well ; but if we raise our eyes from their books to 
their fields, and coolly compare what we see in the best districts 
farmed in large farms, with what we see in the best districts farmed 
in small farms, we see, and there is no bhnking the fact, better 
crops on the ground in Flanders, East Friesland, Holstein, in short, 
on the whole Hne of the arable land of equal quahty of the Continent, 
from the Sound to Calais, than we see on the line of British coast 
opposite to this line, and in the same latitudes, from the Frith of 
Forth all round to Dover. Minute labour on small portions of 
arable ground gives evidently, in equal soils and chmates, a superior 
productiveness, where these small portions belong in property, as 
in Flanders, Holland, Friesland, and Ditmarsch in Holstein, to the 
farmer. It is not pretended by our agricultural writers, that our 
large farmers, even in Berwickshire, Eoxburghshire, or the Lothians, 
approach to the garden-Hke cultivation, attention to manures, 
drainage, and clean state of the land, or in productiveness from a 
small space of soil not originally rich, which distinguish the small 
farmers of Flanders, or their system. In the best-farmed parish in 
Scotland or England, more land is wasted in the corners and borders 
of the fields of large farms, in the roads through them, unnecessarily 
wide because they are bad, and bad because they are wide, in 
neglected commons, waste spots, useless belts and clumps of sorry 
trees, and such unproductive areas, than would maintain the poor 
of the parish, if they were all laid together and cidtivated. But 
large capital appHed to farming is of course only applied to the very 
best of the soils of a country. It cannot touch the small unpro- 
ductive spots which require more time and labour to fertihze 
them than is consistent with a quick return of capital. But although 
hired time and labour cannot be apphed beneficially to such culti- 
vation, the owner's own time and labour may. He is working for 
no higher terms at first from his land than a bare living. But in 
the course of generations fertility and value are produced ; a better 
Hving, and even very improved processes of husbandry, are attained. 
Furrow draining, stall feeding all summer, Hquid manures, are 
universal in the husbandry of the small farms of Flanders, Lombardy, 
Switzerland. Our most improving districts under large farms are 
but beginning to adopt them. Dairy husbandry even, and the 
manufacture oi the largest cheeses by the co-operation of many 



266 BOOK II. CHAPTER VI. § 4 

small farmers,* the mutual assurance of property against fire and 
hail-storms, by the co-operation of small farmers — the most scientific 
and expensive of all agricultural operations in modern times, the 
manufacture of beet-root sugar — the supply of the European markets 
with flax and hemp, by the husbandry of small farmers — the abund- 
ance of legumes, fruits, poultry, in the usual diet even of the lowest 
classes abroad, and the total want of such variety at the tables even 
of our middle classes, and this variety and abundance essentially 
connected with the husbandry of small farmers — all these are 
features in the occupation of a country by small proprietor-farmers, 
which must make the inquirer pause before he admits the dogma 
of our land doctors at home, that large farms worked by hired 
labour and great capital can alone bring out the greatest productive- 
ness of the soil and furnish the greatest supply of the necessaries 
and conveniences of life to the inhabitants of a country." 

§ 4. Among the many flourishing regions of Germany in which 
peasant properties prevail, I select the Palatinate, for the advantage 
of quoting, from an English source, the results of recent personal 
observation of its agriculture and its people. Mr. Howitt, a writer 
whose habit it is to see all EngHsh objects and English sociahties 
en beau, and who, in treating of the Ehenish peasantry, certainly 
does not underrate the rudeness of their implements, and the 
inferiority of their ploughing, nevertheless shows that under the 
invigorating influence of the feeHngs of proprietorship, they make 
up for the imperfections of their apparatus by the intensity of their 

* The manner in wliicli the Swiss peasants combine to carry on cheese- 
making by their united capital deserves to be noted. " Each parish in Swit- 
zerland hires a man, generally from the district of Gruyere in the canton of 
Freyburg, to take care of the herd, and make the cheese. One cheeseman, one 
pressman or assistant, and one cowherd are considered necessary for every 
forty cows. The owners of the cows get credit each of them, in a book daily 
for the quantity of milk given by each cow. The cheeseman and his assistants 
milk the cows, put the milk all together, and make cheese of it, and at the end 
of the season each owner receives the weight of cheese proportionable to the 
quantity of milk his cows have delivered. By this co-operative plan, instead 
of the small-sized unmarketable cheeses only, which each could produce out of 
his three or four cows' milk, he has the same weight in large marketable cheese 
superior in quality, because made by people who attend to no other business. 
The cheeseman and his assistants are paid so much per head of the cows, in 
money or it. cheese, or sometimes they hire the cows, and pay the owners in 
money or cheese." Notes of a Traveller^ p. 351. A similar system exists in the 
French Jura. See, for full details, Lavergne, Economie Eurale de la France, 2nd 
ed., pp. 139 et seqq. One of the most remarkable points in this interesting 
case of combination of labour is the confidence which it supposes, and which 
experience must justify, in the integrity of the persons employed. 



PEASANT PROPRIETORS 267 

appKcation. " Tlie peasant harrows and clears his land till it is 
in the nicest order, and it is admirable to see the crops which he 
obtains." * " The peasants f are the great and ever-present objects 
of country Hfe. They are the great population of the country, 
because they themselves are the possessors. This country is, in 
fact, for the most part, in the hands of the people. It is parcelled 

out among the multitude The peasants are not, as with us, 

for the most part, totally cut off from property in the soil they 
cultivate, totally dependent on the labour afforded by others — they 
are themselves the proprietors. It is, perhaps, from this cause that 
they are probably the most industrious peasantry in the world. 
They labour busily, early and late, because they feel that they are 

labouring for themselves The German peasants work hard, 

but they have no actual want. Every man has his house, his 
orchard, his roadside trees, commonly so heavy with fruit, that he 
is obhged to prop and secure them all ways, or they would be torn 
to pieces. He has his corn-plot, his plot for mangel-wurzel, for 
hemp, and so on. He is his own master ; and he, and every member 
of his family, have the strongest motives to labour. You see the 
effect of this in that unremitting diligence which is beyond that of 
the whole world besides, and his economy, which is still greater. 
The Germans, indeed, are not so active and lively as the English. 
You never see them in a bustle, or as though they meant to knock 

off a vast deal in a little time They are, on the contrary, 

slow, but for ever doing. They plod on from day to day, and year 
to year — the most patient, untirable, and persevering of animals. 
The Enghsh peasant is so cut off from the idea of property, that he 
comes habitually to look upon it as a thing from which he is warned 
by the laws of the large proprietors, and becomes, in consequence, 

spiritless, purposeless The German bauer, on the contrary, 

looks on the country as made for him and his fellow-men. He feels 
himself a man ; he has a stake in the country, as good as that of the 
bulk of his neighbours ; no man can threaten him with ejection, 
or the workhouse, so long as he is active and economical. He 
walks, therefore, with a bold step ; he looks you in the face with 
the air of a free man, but of a respectful one." 

Of their industry, the same writer thus further speaks : " There 
is not an hour of the year in which they do not find unceasing occupa- 
tion. In the depth of winter, when the weather permits them by any 

* Rural and Domestic Life of Germany, p. 27. 
t Ibid. p. 40. 



268 BOOK II. CHAPTER VI. § 4 

means to get out of doors, they are always finding somefhing to do. 
They carry out their manure to their lands while the frost is in them. 
If there is not frost, they are busy cleaning ditches and felling old 
fruit trees, or such as do not bear well. Such of them as are too 
poor to lay in a sufficient stock of wood, find plenty of work in ascend- 
ing into the mountainous woods, and bringing thence fuel. It 
would astonish the EngHsh common people to see the intense labour 
with which the Germans earn their firewood. In the depths of 
frost and snow, go into any of their hills and woods, and there you 
will find them hacking up stumps, cutting ofi branches, and gather- 
ing, by all means which the official wood-poHce will allow, boughs, 
stakes, and pieces of wood, which they convey home with the most 
incredible toil and patience." * After a description of their careful 
and laborious vineyard culture, he continues, f "In England, with 
its great quantity of grass lands, and its large farms, so soon as the 
grain is in, and the fields are shut up for hay grass, the country 
seems in a comparative state of rest and quiet. But here they are 
everywhere, and for ever, hoeing and mowing, planting and cutting, 
weeding and gathering. They have a succession of crops hke a 
market-gardener. They have their carrots, poppies, hemp, flax, 
saintfoin, lucerne, rape, colewort, cabbage, rotabaga, black turnips, 
Swedish and white turnips, teazels, Jerusalem artichokes, mangel- 
wurzel, parsnips, kidney-beans, field beans, and peas, vetches, 
Indian corn, buckwheat, madder for the manufacturer, potatoes, 
their great crop of tobacco, millet — all, or the greater part, under the 
.family management, in their own family allotments. They have 
had these things first to sow, many of them to transplant, to hoe, 
to weed, to clear of insects, to top ; many of them to mow and 
gather in successive crops. They have their water-meadows, of 
which kind almost all their meadows are, to flood, to mow, and 
reflood ; watercourses to reopen and to make anew : their early 
fruits to gather, to bring to market with their green crops of vege- 
tables ; their cattle, sheep, calves, foals, most of them prisoners, 
and poultry to look after ; their vines, as they shoot rampantly in 
the summer heat, to prune, and thin out the leaves when they are too 
thick : and any one may imagine what a scene of incessant labour 
it is." 

This interesting sketch, to the general truth of which any 
observant traveller in that highly cultivated and populous region 

* Rural and Domestic Life of Qermany, p. 44. 
t Ibid. p. 50. 



PEASANT PROPRIETORS 269 

can bear witness, accords with tlie more elaborate delineation by 
a distinguished inhabitant, Professor Ran, in his little treatise 
On the Agriculture of the Palatinate.* Dr. Ean bears testimony 
not only to the industry, but to the skill and intelligence of the 
peasantry ; their judicious employment of manures, and excellent 
rotation of crops ; the progressive improvement of their agriculture 
for generations past, and the spirit of further improvement which is 
still active. " The indefatigableness of the country people, who 
may be seen in activity all the day and all the year, and are never 
idle, because they make a good distribution of their labours, and 
find for every interval of time a suitable occupation, is as well known 
as their zeal is praiseworthy in turning to use every circumstance 
which presents itself, in seizing upon every useful novelty which offers, 
and even in searching out new and advantageous methods. One 
easily perceives that the peasant of this district has reflected much on 
his occupation : he can give reasons for his modes of proceeding, 
even if those reasons are not always tenable ; he is as exact an 
observer of proportions as it is possible to be from memory, without 
the aid of figures : he attends to such general signs of the times as 
appear to augur him either benefit or harm." f 

1 The experience of all other parts of Germany is similar. " In 
Saxony," says Mr. Kay, " it is a notorious fact, that during the last 
thirty years, and since the peasants became the proprietors of 
the land, there has been a rapid and continual improvement in the 
condition of the houses, in the manner of living, in the dress of the 
peasants, and particularly in the culture of the land. I have 
twice walked through that part of Saxony called Saxon Switzerland, 
in company with a German guide, and on purpose to see the state 
of the villages and of the farming, and I can safely challenge con- 
tradiction when I affirm that there is no farming in all Europe 
superior to the laboriously careful cultivation of the valleys of that 
part of Saxony. There, as in the cantons of Berne, Vaud, and 
Zurich, and in the Rhine provinces, the farms are singularly 
flourishing. They are kept in beautiful condition, and are always 
neat and well managed. The ground is cleared as if it were a 
garden. No hedges or brushwood encumber it. Scarcely a rush or 
thistle or a bit of rank grass is to be seen. The meadows are well 
watered every spring with hquid manure, saved from the drainings 

* Ueher die Landwirthschaft der PJieiwpfdlz, und insbesondere in der Heidei^ 
berger Gegend. Von Dr. Karl Heinrich Rau. Heidelberg, 1830. 
f Rau, pp. 15, 16. 
1 [The rest of this section was added in the 3rd ed, (1852).] 



270 BOOK 11. CHAPTER VI. § 4 

of the farm yards. Tlie grass is so free from weeds tliat tlie Saxon 
meadows reminded me more of English lawns than of anything else 
I had seen. The peasants endeavour to outstrip one another in 
the quantity and quahty of the produce, in the preparation of the 
ground, and in the general cultivation of their respective portions. 
All the Httle proprietors are eager to find out how to farm so as 
to produce the greatest results : they diligently seek after improve- 
ments ; they send their children to the agricultural schools in order 
to fit them to assist their fathers ; and each proprietor soon adopts 
a new improvement introduced by any of his neighbours."* If 
this be not overstated, it denotes a state of intelligence very different 
not only from that of English labourers but of Enghsh farmers. 

Mr. Kay's book, pubhshed in 1850, contains a mass of evidence 
gathered from observation and inquiries in many different parts 
of Europe, together with attestations from many distinguished 
writers, to the beneficial effects of peasant properties. Among 
the testimonies which he cites respecting their effect on agriculture, 
I select the following. 

" Reichensperger, himself an inhabitant of that part of Prussia 
where the land is the most subdivided, has published a long and 
very elaborate work to show the admirable consequences of a 
system of freeholds in land. He expresses a very decided opinion that 
not only are the gross products of any given number of acres held 
and cultivated by small or peasant proprietors greater than the 
gross products of an equal number of acres held by a few great 
proprietors, and cultivated by tenant farmers, but that the net 
products of the former, after deducting all the expenses of cultiva- 
tion, are also greater than the net products of the latter. . . . He 
mentions one fact which seems to prove that the fertility of the 
land in countries where the properties are small must be rapidly 
increasing. He says that the price of the land which is divided 
into small properties in the Prussian Rhine provinces is much 
higher, and has been rising much more rapidly, than the price 
of land on the great estates. He and Professor Rau both say that 
this rise in the price of the small estates would have ruined the 
more recent purchasers, unless the productiveness of the small 
estates had increased in at least an equal proportion ; and as 
the small 'proprietors have been gradually becoming more and more 

* The Social Condition and Education of the People in England and Europe ; 
showing the results of the Primary Schools, and of the division of Landed Property 
in Foreign Countries. By Joseph Kay, M.A., Barrister-at-Law, and late 
Travelling Bachelor of the University fi Cambridge. Vol. i. pp. 138-40. 



PEASANT PROPRIETORS 271 

prosperous^ notwithstanding the increasing prices they have paid 
for their land, he argues, with apparent justness, that this would 
seem to show that not only the gross profits of the small estates, 
but the net profits also have been gradually increasing, and that 
the net profits per acre of land, when farmed by small proprietors, 
are greater than the net profits per acre of land farmed by a great 
proprietor. He says, with seeming truth, that the increasing price 
of land in the small estates cannot be the mere effect of competition, 
or it would have diminished the profits and the prosperity of the 
small proprietors, and that this result has not followed the rise. 

" Albrecht Thaer, another celebrated German writer on the 
different systems of agriculture, in one of his later works {Grund- 
sdtze der rationellen Landwirihschaft) expresses his decided con- 
viction, that the net produce of land is greater when farmed by 
small proprietors than when farmed by great proprietors or their 
tenants. . . . This opinion of Thaer is all the more remarkable 
as, during the early part of his life, he was very strongly in favour 
of the EngUsh system of great estates and great farms." 

Mr. Kay adds from his own observation, " The peasant farming 
of Prussia, Saxony, Holland, and Switzerland is the most perfect 
and economical farming I have ever witnessed in any country."* 

§ 5. But the most decisive example in opposition to the EngUsh 
prejudice against cultivation by peasant proprietors is the case 
of Belgium. The soil is originally one of the worst in Europe. 
" The provinces," says Mr. M'Culloch,t '' of West and East Flanders, 
and Hainault, form a far stretching plain, of which the luxuriant 
vegetation indicates the indefatigable care and labour bestowed 
upon its cultivation ; for the natural soil consists almost wholly 
of barren sand, and its great fertility is entirely the result of very 
skilful management and judicious appHcation of various manures.'* 
There exists a carefully prepared and comprehensive treatise on 
Flemish Husbandry, in the Farmer's Series of the Society for the 
Diffusion of Useful Knowledge. The writer observes J that the 
Flemish agriculturists " seem to want nothing but a space to work 
upon : whatever be the quality or texture of the soil, in time they 
will make it produce something. The sands in the Campine can 
be compared to nothing but the sand on the sea-shore, which 
they probably were originally. It is highly interesting to follow 

* Kay, i. 116-8. 
f Geographical Dictionary, art. " Belgium." % Pp. 11-14. 



272 BOOK 11. CHAPTER VI. § 5 

step by step the progress of improvement. Here you see a cottage 
and rude cowshed erected on a spot of the most unpromising 
aspect. The loose white sand blown into irregular mounds is only 
kept together by the roots of the heath : a small spot only is levelled 
and surrounded by a ditch : part of this is covered with young 
broom, part is planted with potatoes, and perhaps a small patch 
of diminutive clover may show itself : " but manures, both sohd 
and Uquid, are collecting, " and this is the nucleus from which, in 
a few years, a little farm will spread around. ... If there is no 
manure at hand, the only thing that can be sown, on pure sand, at 
first is broom : this grows in the most barren soils ; in three years 
it is fit to cut, and produces some return in faggots for the bakers 
and brickmakers. The leaves which have fallen have somewhat 
enriched the soil, and the fibres of the roots have given a slight 
degree of compactness. It may now be ploughed and sown with 
buckwheat, or even with rye without manure. By the time this 
is reaped, some manure may have been collected, and a regular 
course of cropping may begin. As soon as clover and potatoes 
enable the farmer to keep cows and make manure, the improvement 
goes on rapidly ; in a few years the soil undergoes a complete 
change : it becomes mellow and retentive of moisture, and enriched 
by the vegetable matter afforded by the decomposition of the 
roots of clover and other plants. . . . After the land has been 
gradually brought into a good state, and is cultivated in a regular 
manner, there appears much less difference between the soils which 
have been originally good, and those which have been made so 
by labour and industry. At least the crops in both appear more 
nearly alike at harvest, than is the case in soils of different qualities 
in other countries. This is a great proof of the excellency of the 
Flemish system ; for it shows that the land is in a constant state 
of improvement, and that the deficiency of the soil is compensated 
by greater attention to tillage and manuring, especially the latter." 
The people who labour thus intensely on their small properties 
or farms, have practised for centuries those principles of rotation 
of crops and economy of manures, which in England are counted 
among modern discoveries : and even now the superiority of their 
agriculture, as a whole, to that of England, is admitted by competent 
judges. " The cultivation of a poor light soil, or a moderate soil," 
says the writer last quoted,* "is generally superior in Flanders to 
that of the most improved farms of the same kind in Britain. We 

* Flemish Husbandry, p. 3. 



PEASANT PROFKIETOKB 273 

surpass the Flemish farmer greatly in capital, in varied implements 
of tillage, in the choice and breeding of cattle and sheep," (though, 
according to the same authority,* they are much " before us in the 
feeding of their cows,") " and the British farmer is in general a 
man of superior education to the Flemish peasant. But in the 
minute attention* to the quaUties of the soil, in the management 
and application of manures of difierent kinds, in the judicious 
succession of crops, and especially in the economy of land, so that 
every part of it shall be in a constant state of production, we 
have still something to learn from the Flemings," and not from an 
instructed and enterprising Fleming here and there, but from the 
general practice. 

Much of the most highly cultivated part of the country consists 
of peasant properties, managed by the proprietors, always either 
wholly or partly by spade industry.f "When the land is cultivated 
entirely by the spade, and no horses are kept, a cow is kept for every 
three acres of land, and entirely fed on artificial grasses and roots. 
This mode of cultivation is principally adopted in the Waes district, 
where properties are very small. All the labour is done by the differ- 
ent members of the family ; " children soon beginning " to assist in 
various minute operations, according to their age and strength, 
such as weeding, hoeing, feeding the cows. If they can raise rye 
and wheat enough to make their bread, and potatoes, turnips, 
carrots and clover, for the cows, they do well ; and the produce of 
the sale of their rape-seed, their flax, their hemp, and their butter, 
after deducting the expense of manure purchased, which is always 
considerable, gives them a very good profit. Suppose the whole 
extent of the land to be six acres, which is not an uncommon occupa- 
tion, and which one man can manage ; " then (after describing the 
cultivation), " if a man with his wife and three young children are 
considered as equal to three and a half grown up men, the family 
will require thirty-nine bushels of grain, forty-nine bushels of 
potatoes, a fat hog, and the butter and milk of one cow : an acre 
and a half of land will produce the grain and potatoes, and allow 
some corn to finish the fattening of the hog, which has the extra 
buttermilk : another acre in clover, carrots, and potatoes, together 
with the stubble turnips, will more than feed the cow ; conse- 
quently two and a half acres of land is sufficient to feed this family, 
and the produce of the other three and a half may be sold to pay 

* Flemish Husbandry, p. 13. 
■ t Ibid. pp. 73 et seq. 



274 BOOK II. CHAPTER VI. § 5 

the rent or the interest of purchase-money, wear and tear of imple- 
ments, extra manure, and clothes for the family. But these acres 
are the most profitable on the farm, for the hemp, flax, and colza 
are included ; and by having another acre in clover and roots, 
a second cow can be kept, and its produce sold. We have, therefore, 
a solution of the problem, how a family can live '^nd thrive on six 
acres of moderate land." After showing by calculation that this 
extent of land can be cultivated in the most perfect manner by the 
family without any aid from hired labour, the writer continues, 
" In a farm of ten acres entirely cultivated by the spade, the addition 
of a man and a woman to the members of the family will render 
all the operations more easy ; and with horse and cart to carry out 
the manure, and bring home the produce, and occasionally draw the 
harrows, -fifteen acres may be very well cultivated. . . . Thus it 
will be seen," (this is the result of some pages of details and calcula- 
tions,*) "that by spade husbandry, an industrious man with a 
small capital, occupying only fifteen acres of good light land, may 
not only live and bring up a family, faying a good rent, but may 
accumulate a considerable sum in the course of his life." But 
the indefatigable industry by which he accomplishes this, and of 
which so large a portion is expended not in the mere cultivation, 
but in the improvement, for a distant return, of the soil itself — 
has that industry no connexion with not paying rent ? Could it 
exist, without presupposing either a virtually permanent tenure, 
or the certain prospect, by labour and economy on hired land, of 
becoming one day a landed proprietor ? 

As to their mode of Uving, " the Flemish farmers and labourers 
live much more economically than the same class in England : 
they seldom eat meat, except on Sundays and in harvest : butter- 
milk and potatoes with brown bread is their daily food." It is on 
this kind of evidence that EngHsh travellers, as they hurry through 
Europe, pronounce the peasantry of every Continental country 
poor and miserable, its agricultural and social system a failure, 
and the Enghsh the only regime under which labourers are well 
off. It is, truly enough, the only regime under which labourers, 
whether well ofi or not, never attempt to be better. So Httle are 
English labourers accustomed to consider it possible that a labourer 
should not spend all he earns, that they habitually mistake the signs 
of economy for those of poverty. Observe the true interpretation 
of the phenomena. 

* Flemish Husbandry, p. 81. 



PEASANT PROPRIETOKS 275 

" Accordingly they are gradually acquiring capital, and their 
great ambition is to have land of their own. They eagerly seize 
every opportunity of purchasing a small farm, and the price is so 
raised by competition, that land pays Httle more than two per cent 
interest for the purchase money. Large properties gradually dis- 
appear, and are divided into small portions, which sell at a high rate. 
But the wealth and industry of the population is continually increas- 
ing, being rather diffused through the masses than accumulated in 
individuals." 

With facts like these, known and accessible, it is not a Httle 
surprising to find the case of Flanders referred to not in recommen- 
dation of peasant properties, but as a warning against them ; on 
no better ground than a presumptive excess of population, inferred 
from the distress which existed among the peasantry of Brabant 
and East Flanders in the disastrous year 1846-47. The evidence 
which I have cited from a writer conversant with the subject, and 
having no economical theory to support, shows that the distress, 
whatever may have been its severity, arose from no insufficiency 
in these little properties to supply abundantly, in any ordinary 
circumstances, the wants of all whom they have to maintain. It 
arose from the essential condition to which those are subject who 
employ land of their own in growing their own food, namely, that 
the vicissitudes of the seasons must be borne by themselves, and 
cannot, as in the case of large farmers, be shifted from them to the 
consumer. When we remember the season of 1846, a partial failure 
of all kinds of grain, and an almost total one of the potato, it is no 
wonder that in so unusual a calamity the produce of six acres, half of 
them sown with flax, hemp, or oil seeds, should fall short of a year's 
provision for a family. But we are not to contrast the distressed 
Flemish peasant with an EngHsh capitahst who farms several hun- 
dred acres of land. If the peasant were an Enghshman, he would not 
be that capitahst, but a day labourer under a capitahst. And is 
there no distress, in times of dearth, among day labourers ? Was 
there none, that year, in countries where small proprietors and small 
farmers are unknown ? I am aware of no reason for beheving 
that the distress was greater in Belgium, than corresponds to the 
proportional extent of the failure of crops compared with other 
countries.* 

* [1849] As mucli of the distress lately complained of in Belgium, as 
partakes in any degree of a permanent character, appears to be almost confined 
to the portion of the population who carry on manufacturing labour, either by 



276 BOOK 11. CHAPTER VI. § 6 

§ 6.1 The evidence of the beneficial operation of peasant 
properties in the Channel Islands is of so decisive a character, 
that I cannot help adding to the numerous citations already made, 
part of a description of the economical condition of those islands, 
by a writer who combines personal observation with an attentive 
study of the information afforded by others. Mr. WilHam Thornton, 
in his Plea for Peasant Proprietors, a book which, by the excellence 
both of its materials and of its execution, deserves to be regarded as 
the standard work on that side of the question, speaks of the island 
of Guernsey in the following terms : "Not even in England is nearly 
so large a quantity of produce sent to market from a tract of such 
limited extent. This of itself might prove that the cultivators must 
be far removed above poverty, for being absolute owners of all the 
produce raised by them, they of course sell only what they do not 
themselves require. But the satisfactoriness of their condition is 
apparent to every observer. ' The happiest community,' says Mr. 
Hill, ' which it has ever been my lot to fall in with, is to be found 
in this little island of Guernsey.' * No matter,' says Sir George 
Head, ' to what point the traveller may choose to bend his way, 
comfort everywhere prevails.' What most surprises the Enghsh 
visitor in his first walk or drive beyond the bounds of St. Peter's 
Port is the appearance of the habitations with which the landscape 
is thickly studded. Many of them are such as in his own country 
would belong to persons of middle rank ; but he is puzzled to guess 
what sort of people live in the other, which, though in general not 
large enough for farmers, are almost invariably much too good in 
every respect for day labourers. . . . Literally, in the whole island, 
with the exception of a few fishermen's huts, there is not one so 
mean as to be Hkened to the ordinary habitation of an English 
farm labourer. . . . ' Look,' says a late Bailiff of Guernsey, Mr. 
De L'Isle Brock, ' at the hovels of the Enghsh, and compare them 
with the cottages of our peasantry,' . , . Beggars are utterly 
unknown. . . . Pauperism, able-bodied pauperism at least, is 

itself or in conjunction with agricultural ; and to be occasioned by a diminished 
demand for Belgic manufactures. 

To the preceding testimonies respecting Germany, Switzerland, and Belgium, 
may be added the following from Niebuhr, respecting the Roman Campagna. 
In a letter from Tivoli, he says, " Wherever you find hereditary farmers, or 
small proprietors, there you also find industry and honesty. I believe that a 
man who would employ a large fortune in establishing small freeholds might 
put an end to robbery in the mountain districts." — Life and Letters of Niebuhr , 
vol. ii. p. 149. 

^ [This section was added to the 2nd ed. (1849).] 



PEASANT PROPRIETORS 277 

nearly as rare as mendicancy. The Savings Banks accounts also 
bear witness to tlie general abundance enjoyed by the labouring 
classes of Guernsey. In the year 1841, there were in England, out 
of a population of nearly fifteen millions, less than 700,000 depositors, 
or one in every twenty persons, and the average amount of the 
deposits was 301. In Guernsey, in the same year, out of a population 
of 26,000, the number of depositors was 1920, and the average amount 
of the deposits 40L" * The evidence as to Jersey and Alderney is of 
a similar character. 

Of the efficiency and productiveness of agriculture on the small 
properties of the Channel Islands, Mr. Thornton produces ample 
evidence, the result of which he sums up as follows : " Thus it 
appears that in the two principal Channel Islands, the agricultural 
population is, in the one twice, and in the other three times, as dense 
as in Britain, there being in the latter country only one cultivator 
to twenty-two acres of cultivated land, while in Jersey there is one 
to eleven, and in Guernsey one to seven acres. Yet the agriculture 
of these islands maintains, besides cultivators, non-agricultural 
populations, respectively four and five times as dense as that of 
Britain. This difference does not arise from any superiority of soil 
or climate possessed by the Channel Islands, for the former is naturally 
rather poor, and the latter is not better than in the southern counties 
of England. It is owing entirely to the assiduous care of the farmers, 
and to the abundant use of manure."t " In the year 1837," he says 
in another place, J " the average yield of wheat in the large farms of 
England was only twenty-one bushels, and the highest average for 
any one county was no more than twenty-six bushels. The highest 
average since claimed for the whole of England is thirty bushels. 
In Jersey, where the average size of farms is only sixteen acres, 
the average produce of wheat per acre was stated by IngHs in 1834 
to be thirty-six bushels ; but it is proved by official tables to have 
been forty bushels in the five years ending with 1833. In Guernsey, 
where farms are still smaller, four quarters per acre, according to 
IngHs, is considered a good, but still a very common crop." *' Thirty 
shilhngs § an acre would be thought in England a very fair rent for 
middhng land ; but in the Channel Islands, it is only very inferior 
land that would not let for at least 4L" 

§ 7. It is from France that impressions unfavourable to peasant 

* A Plea for Peasant Proprietors. By William Thomas Thornton, pp. 99-104. 
t Ibid. p. 38. 1 Ibid. p. 9. § Ibid. p. 32. 



278 BOOK II. CHAPTER VI. § 7 

properties are generally drawn ; it is in France tliat tlie system is 
so often asserted to liave brought forth its fruit in the most wretched 
possible agriculture, and to be rapidly reducing, if not to have already 
reduced the peasantry, by subdivision of land, to the verge of 
starvation. It is difficult to account for the general prevalence of 
impressions so much the reverse of truth. The agriculture of France 
was wretched and the peasantry in great indigence before the Revo- 
lution. At that time they were not, so universally as at present, 
landed proprietors. There were, however, considerable districts 
of France where the land, even then, was to a great extent the pro- 
perty of the peasantry, and among these were many of the most 
conspicuous exceptions to the general bad agriculture and to the 
general poverty. An authority, on this point, not to be disputed, 
is Arthur Young, the inveterate enemy of small farms, the cory- 
phaeus of the modern Enghsh school of agriculturists ; who yet, 
travelling over nearly the whole of France in 1787, 1788, and 1789, 
when he finds remarkable excellence of cultivation, never hesitates 
to ascribe it to peasant property. " Leaving Sauve," says he,* 
" I was much struck with a large tract of land, seemingly nothing but 
huge rocks ; yet most of it enclosed and planted with the most 
industrious attention. Every man has an oHve, a mulberry, an 
almond, or a peach tree, and vines scattered among them ; so that 
the whole ground is covered with the oddest mixture of these plants 
and bulging rocks, that can be conceived. The inhabitants of this 
village deserve encouragement for their industry ; and if I were a 
French minister they should have it. They would soon turn all 
the deserts around them into gardens. Such a knot of active 
husbandmen, who turn their rocks into scenes of fertiHty, because 
I suppose their own, would do the same by the wastes, if animated by 
the same omnipotent principle." Again : f " Walk to Rossendal," 
(near Dunkirk) " where M. le Brun has an improvement on the 
Dunes, which he very obhgingly showed me. Between the town and 
that place is a great number of neat little houses, built each with its 
garden, and one or two fields enclosed, of most wretched blowing 
dune sand, naturally as white as snow, but improved by industry. 
The magic of property turns sand to gold." And again : f " Going out 
of Gauge, I was surprised to find by far the greatest exertion in 

* Arthur Young's Travels in France, vol. i. p. 50. [In the edition of a 
portion of the work by Miss Betham-Ed wards, p. 53.] 
t Ibid. p. 88 [ed. Betham- Edwards, p. 109]. 
X Ibid. p. 51 [ed. Betham-Edwards, p. 54]. 



PEASANT PROPRIETORS 279 

irrigation which I had yet seen in France ; and then passed by some 
steep mountains, highly cultivated in terraces. Much watering at 
St. Lawrence. The scenery very interesting to a farmer. From 
Gange, to the mountain of rough ground which I crossed, the ride 
has been the most interesting which I have taken in France ; the 
efforts of industry the most vigorous ; the animation the most lively. 
An activity has been here, that has swept away all difficulties 
before it, and has clothed the very rocks with verdure. It 
would be a disgrace to common sense to ask the cause ; the 
enjoyment of property must have done it. Give a man the secure 
possession of a bleak rock, and he will turn it into a garden ; give 
him a nine years' lease of a garden, and he will convert it into 
a desert." 

In his description of the country at the foot of the Western 
Pyrenees, he speaks no longer from surmise, but from knowledge. 
" Take * the road to Moneng, and come presently to a scene which 
was so new to me in France, that I could hardly believe my own 
eyes. A succession of many well-built, tight, and comfortaUe 
farming cottages built of stone and covered with tiles ; each having 
its little garden, enclosed by dipt thorn-hedges, with plenty of peach 
and other fruit-trees, some fine oaks scattered in the hedges, and 
young trees nursed up with so much care, that nothing but the foster- 
ing attention of the owner could effect anything like it. To every 
house belongs a farm, perfectly well enclosed, with grass borders 
mown and neatly kept around the corn-fields, with gates to pass 
from one enclosure to another. There are some parts of England 
(where small yeomen still remain) that resemble this country of 
Beam ; but we have very little that is equal to what I have seen 
in this ride of twelve miles from Pau to Moneng. It is aU in the hands 
of little proprietors, without the farms being so sma>ll as to occasion 
a vicious and miserable population. An air of neatness, warmth, 
and comfort breathes over the whole. It is visible in their new built 
houses and stables ; in their little gardens ; in their hedges ; in the 
courts before their doors ; even in the coops for their poultry, and 
the sties for their hogs. A peasant does not think of rendering 
his pig comfortable, if his own happiness hang by the thread of a 
nine years' lease. We are now in Beam, within a few miles of the 
cradle of Henry IV. Do they inherit these blessings from that 
good prince ? The benignant genius of that good monarch seems 
to reign still over the country ; each peasant has the fowl in the pot.'* 

* Young, vol. i. p. 56 [ed. Betham-Edwards, p. 61]. 



280 BOOK II. CHAPTER VI. § 1 

He frequently notices the excellence of the agriculture of French 
Flanders, where the farms " are all small, and much in the hands of 
little proprietors." * In the Pays de Caux, also a country of small 
properties, the agriculture was miserable ; of which his explanation 
was that it "is a manufacturing country, and farming is but a 
secondary pursuit to the cotton fabric, which spreads over the whole 
of it." I The same district is still a seat of manufactures, and a 
country of small proprietors, and is now, whether we judge from the 
appearance of the crops or from the official returns, one of the best 
cultivated in France. In " Flanders, Alsace, and part of Artois, as 
well as on the banks of the Garonne, France possesses a husbandry 
equal to our own." J Those countries, and a considerable part of 
Quercy, " are cultivated more like gardens than farms. Perhaps 
they are too much like gardens, from the smallness of properties." § 
In those districts the admirable rotation of crops, so long practised 
in Italy, but at that time generally neglected in France, was already 
universal. " The rapid succession of crops, the harvest of one being 
but the signal of sowing immediately for a second," (the same fact 
which strikes all observers in the valley of the Rhine) " can scarcely 
be carried to greater perfection : and this is a point, perhaps, of all 
others the most essential to good husbandry, when such crops are 
so justly distributed as we generally find them in these provinces ; 
cleaning and ameliorating ones being made the preparation for such 
as foul and exhaust." 

It must not, however, be supposed that Arthur Young's testimony 
on the subject of peasant properties is uniformly favourable. In 
Lorraine, Champagne, and elsewhere, he finds the agriculture bad, 
and the small proprietors very miserable, in consequence, as he says, 
of the extreme subdivision of the land. His opinion is thus summed 
up : II " Before I travelled, I conceived that small farms, in property, 
were very susceptible of good cultivation ; and that the occupier of 
such, having no rent to pay, might be sufficiently at his ease to work 
improvements, and carry on a vigorous husbandry ; but what I 
have seen in France, has greatly lessened my good opinion of them. 
In Flanders, I saw excellent husbandry on properties of 30 to 100 
acres ; but we seldom find here such small patches of property as 
are common in other provinces. In Alsace, and on the Garonne, 
that is, on soils of such exuberant fertility as to demand no exertions, 
some small properties also are well cultivated. In Beam, I passed 

* Young, vol. i. pp. 322-4. f Ibid. p. 325. 

% Ibid. p. 357. § Ibid. p. 364. y Ibid. p. 412. 



PEASANT PROPRIETORS 281 

through a region of little farmers, whose appearance, neatness, ease, 
and happiness charmed me ; it was what property alone could, on a 
small scale, effect ; but these were by no means contemptibly small ; 
they are, as I judged by the distance from house to house, from 40 
to 80 acres. Except these, and a very few other instances, I saw 
nothing respectable on small properties, except a most unremitting 
industry. Indeed, it is necessary to impress on the reader's mind, 
that though the husbandry I met with, in a great variety of instances 
on little properties, was as bad as can be well conceived, yet the 
industry of the possessors was so conspicuous, and so meritorious, 
that no commendations would be too great for it. It was 
sufficient to prove that property in land is, of all others, the 
most active instigator to severe and incessant labour. And 
this truth is of such force and extent, that I know no way so 
sure of carrying tillage to a mountain top, as by permitting the 
adjoining villagers to acquire it in property ; in fact, we see that 
in the mountains of Languedoc, &c., they have conveyed earth 
in baskets, on their backs, to form a soil where nature had 
denied it." 

The experience, therefore, of this celebrated agriculturist and 
apostle of the grande culture, may be said to be, that the effect of 
smaU properties, cultivated by peasant proprietors, is admirable 
when they are not too small : so small, namely, as not fully to occupy 
the time and attention of the family ; for he often complains, with 
great apparent reason, of the quantity of idle time which the 
peasantry had on their hands when the land was in very small 
portions, notwithstanding the ardour with which they toiled to im- 
prove their Httle patrimony in every way which their knowledge 
or ingenuity could suggest. He recommends, accordingly, that a 
limit of subdivision should be fixed by law ; and this is by no means 
an indefensible proposition in countries, if such there are, where the 
morcellement, having already gone farther than the state of capital 
and the nature of the staple articles of cultivation render advisable, 
still continues progressive. That each peasant should have a patch 
of land, even in full property, if it is not sufficient to support him in 
comfort, is a system with all the disadvantages, and scarcely any of 
the benefits, of gmall properties ; since he must either five in indi- 
gence on the produce of his land, or depend, as habitually as if he had 
no landed possessions, on the wages of hired labour : which, besides, 
if all the holdings surrounding him are of similar dimensions, he has 
little prospect of finding. The benefits of peasant properties are 



282 BOOK II. CHAPTER VL § 7 

conditional on their not being too much subdivided ; that is, on 
their not being required to maintain too many persons, in proportion 
to the produce that can be raised from them by those persons. The 
question resolves itself, like most questions respecting the condition 
of the labouring classes, into one of population. Are small proper- 
ties a stimulus to undue multiplication, or a check to it ? 



CHAPTER VII 

CONTINUATION OP THE SAME SUBJECT 

§ 1. Before examining the influence of peasant properties 
on the ultimate economical interests of the labouring class, as deter- 
mined by the increase of population, let us note the points respecting 
the moral and social influence of that territorial arrangement, which 
may be looked upon as established, either by the reason of the case, 
or by the facts and authorities cited in the preceding chapter. 

The reader new to the subject must have been struck with the 
powerful impression made upon all the witnesses to whom I have 
referred, by what a Swiss statistical writer calls the " almost super- 
human industry " of peasant proprietors.* On this point, at least, 
authorities are unanimous. Those who have seen only one country 
of peasant properties always think the inhabitants of that country 
the most industrious in the world. There is as Httle doubt among 
observers, with what feature in the condition of the peasantry this 
pre-eminent industry is connected. It is the " magic of property " 
which, in the words of Arthur Young, " turns sand into gold.'* 
The idea of property does not, however, necessarily imply that there 
should be no rent, any more than that there should be no taxes. 
It merely imphes that the rent should be a fixed charge, not hable 
to be raised against the possessor by his own improvements, or by 
the will of a landlord. A tenant at a quit-rent is, to all intents and 
purposes, a proprietor ; a copyholder is not less so than a freeholder. 
What is wanted is permanent possession on fixed terms. " Give 
a man the secure possession of a bleak rock, and he will turn it into 
a garden ; give him a nine years' lease of a garden, and he will 
convert it into a desert." 

The details which have been cited, and those, still more minute, 

to be found in the same authorities, concerning the habitually 

elaborate system of cultivation, and the thousand devices of the 

peasant proprietor for making every superfluous hour and odd 

* D&r Canton iSchaffhausen (ut supra), p. 53. 



284 BOOK II. CHAPTER VII. § 1 

moment instrumental to some increase in the future produce and 
value of the land, will explain what has been said in a previous 
chapter * respecting the far larger gross produce which, with any- 
thing hke parity of agricultural knowledge, is obtained from the same 
quahty of soil on small farms, at least when they are the pro- 
perty of the cultivator. The treatise on Flemish Husbandry is 
especially instructive respecting the means by which untiring 
industry does more than outweigh inferiority of resources, im- 
perfection of implements, and ignorance of scientific theories. The 
peasant cultivation of Flanders and Italy is affirmed to produce 
heavier crops, in equal circumstances of soil, than the best cultivated 
districts of Scotland and England. It produces them, no doubt, 
with an amount of labour which, if paid for by an employer, would 
make the cost to him more than equivalent to the benefit ; but to the 
peasant it is not cost, it is the devotion of time which he can spare, 
to a favourite pursuit, if we should not rather say a ruUng passion.f 
1 We have seen, too, that it is not solely by superior exertion that 
the Flemish cultivators succeed in obtaining these brilliant results. 
The same motive which gives such intensity to their industry, 
placed them earUer in possession of an amount of agricultural 
knowledge, not attained until much later in countries where agricul- 
ture was carried on solely by hired labour. An equally high testimony 

* Supra, Book i. cli. ix. § 4. 

I Read the graphic description by the historian Michelet, of the feelings of 
a peasant proprietor towards his land. 

" If we would know the inmost thought, the passion, of the French peasant, 
it is very easy. Let us walk out on Sunday into the country and follow him. 
Behold him yonder, walking in front of us. It is two o'clock ; his wife is at 
vespers ; he has on his Sunday clothes ; I perceive that he is going to visit 
his mistress. 

" What mistress ? His land. 

" I do not say he goes straight to it. No, he is free to-day, and may either 
go or not. Does he not go every day in the week ? Accordingly, he turns 
aside, he goes another way, he has business elsewhere. And yet— he goes. 

" It is true, he was passing close by ; it was an opportunity. He looks, but 
apparently he will not go in ; what for ? And yet — he enters. 

" At least it is probable that he will not work ; he is in his Sunday dress : 
he has a clean shirt and blouse. Still, there is no harm in plucking up this 
weed and throwing out that stone. There is a stump, too, which is in the way ; 
but he has not his tools with him, he will do it to-morrow. 

" Then he folds his arms and gazes, serious and careful. He gives a long, 
a very long look, and seems lost in thought. At last, if he thinks himself 
observed, if he sees a passer-by, he moves slowly away. Thirty paces o£E he 
stops, turns round, and casts on his land a last look, sombre and profound, but 
to those who can see it, the look is full of passion, of heart, of devotion." — Lt 
Peuple, by J. Michelet, Ire partie, ch. 1. 

^ [This paragraph was added in the 5th ed. (1862).] 



PEASANT PROPRIETORS 285 

is borne by M. de Lavergne * to the agricultural skill of tlie small 
proprietors in those parts of France to which, the fetite culture is 
really suitable. " In the rich plains of Flanders, on the banks of 
the Ehine, the Garonne, the Charente, the Khone, all the practices 
which fertihze the land and increase the productiveness of labour 
are known to the very smallest cultivators, and practised by them, 
however considerable may be the advances which they require. 
In their hands, abundant manures, collected at great cost, repair 
and incessantly increase the fertiUty of the soil, in spite of the 
activity of cultivation. The races of cattle are superior, the crops 
magnificent. Tobacco, flax, colza, madder, beetroot, in some 
places ; in others, the vine, the ohve, the plum, the mulberry, only 
yield their abundant treasures to a population of industrious 
labourers. Is it not also to the petite culture that we are indebted for 
most of the garden produce obtained by dint of great outlay in 
the neighbourhood of Paris 2 " 

§ 2. Another aspect of peasant properties, in which it is essential 
that they should be considered, is that of an instrument of popular 
education. Books and schooHng are absolutely necessary to 
education ; but not all-sufficient. The mental faculties will be 
most developed where they are most exercised ; and what gives 
more exercise to them than the having a multitude of interests, 
none of which can be neglected, and which can be provided for only 
by varied efforts of will and intelligence ? Some of the disparagers 
of small properties lay great stress on the cares and anxieties which 
beset the peasant proprietor of the Rhineland or Flanders. It is 
precisely those cares and anxieties which tend to make him a 
superior being to an Enghsh day-labourer. It is, to be sure, rather 
abusing the privileges of fair argument to represent the condition 
of a day-labourer as not an anxious one. I can conceive no circum- 
stances in which he is free from anxiety, where there is a possibility 
of being out of employment ; imless he has access to a profuse 
dispensation of parish pay, and no shame or reluctance in demanding 
it.i The day-labourer has, in the existing state of society and 

* Essai sur VEconomie Eurale de VAngleterre, de VEcosse, et de Vlrlande, 3m& 
ed. p. 127. [Cf. English, translation in Rural Economy of Great Britain and 
Ireland (1855), p. 116.] ^ 

^ [Here followed in the original text the following words, omitted in the 3rd 
©d, (1852) : " then indeed he may feel with the old doggrel— 
Hang sorrow, cast away care. 
The parish is bound to find ua. 
But unless so shielded, the day labourer," &c.] 



286 \ BOOK IL CHAPTER VII. § 7f 

population, many of the anxieties which have not an invigorating 
effect on the mind, and none of those which have. The position 
of the peasant proprietor of Continental Europe is the reverse. 
From the anxiety which chills and paralyses — the uncertainty of 
having food to eat — few persons are more exempt : it requires as 
rare a concurrence of circumstances as the potato failure combined 
with an universal bad harvest, to bring him within reach of that 
danger. His anxieties are the ordinary vicissitudes of more and 
less ; his cares are that he takes his fair share of the business of 
Hfe ; that he is a free human being, and not perpetually a child, 
which seems to be the approved condition of the labouring classes 
according to the prevaiHng philanthropy. He is no longer a being 
of a different order from the middle classes ; he has pursuits and 
objects hke those which occupy them, and give to their intellects 
the greatest part of such cultivation as they receive. If there is a 
first principle in intellectual education, it is this — that the discipline 
which does good to the mind is that in which the mind is active, 
not that in which it is passive. The secret for developing the 
faculties is to give them much to do, and much inducement to do it. 
This detracts nothing from the importance, and even necessity, of 
other kinds of mental cultivation. The possession of property 
will not prevent the peasant from being coarse, selfish, and narrow- 
minded. These things depend on other influences and other kinds 
of instruction. But this great stimulus to one kind of mental 
activity in no way impedes any other means of intellectual develop- 
ment. On the contrary, by cultivating the habit of turning to 
practical use every fragment of knowledge acquired, it helps to 
render that schooling and reading fruitful, which without some such 
auxiliary influence are in too many cases hke seed thrown on a rock. 

§ 3. It is not on the intelligence alone that the situation of a 
peasant proprietor exercises an improving influence. It is no 
less propitious to the moral virtues of prudence, temperance, and 
self-control. Day-labourers, where the labouring class mainly 
consists of them, are usually improvident : they spend carelessly 
to the full extent of their means, and let the future shift for itself. 
This is so notorious, that many persons strongly interested in the 
welfare of the labouring classes, hold it as a fixed opinion that an 
increase of wages would do them httle good, unless accompanied 
by at least a corresponding improvement in their tastes and habits. 
The tendency of peasant proprietors, and of those who hope to 



PEASANT PROPRIETORS 287 

become proprietors, is to the contrary extreme ; to take even too 
mucli thought for the morrow. They are oftener accused of penuri- 
ousness than of prodigaUty. They deny themselves reasonable 
indulgences, and hve wretchedly in order to economize. In Switzer- 
land almost everybody saves, who has any means of saving ; the 
case of the Flemish farmers has been already noticed : among the 
French, though a pleasure-loving and reputed to be a self-indulgent 
people, the spirit of thrift is diffused through the rural population 
in a manner most gratifying as a whole, and which in individual 
instances errs rather on the side of excess than defect. Among 
those who, from the hovels in which they Hve, and the herbs and 
roots which constitute their diet, are mistaken by travellers for 
proofs and specimens of general indigence, there are numbers who 
have hoards in leathern bags, consisting of sums in five-franc pieces, 
which they keep by them perhaps for a whole generation, unless 
brought out to be expended in their most cherished gratification — 
the purchase of land. If there is a moral inconvenience attached 
to a state of society in which the peasantry have land, it is the 
danger of their being too careful of their pecuniary concerns ; of its 
making them crafty, and " calculating " in the objectionable sense. 
The French peasant is no simple countryman, no downright " paysan 
du Danube ; " both in fact and in fiction he is now " le ruse paysan." 
That is the stage which he has reached in the progressive develop- 
ment which the constitution of things has imposed on human intelli- 
gence and human emancipation. But some excess in this direction 
is a small and a passing evil compared with recklessness and im- 
providence in the labouring classes, and a cheap price to pay for the 
inestimable worth of the virtue of self-dependence, as the general 
characteristic of a people : a virtue which is one of the first conditions 
of excellence in the human character — the stock on which if the 
other virtues are not grafted, they have seldom any firm root ; a 
quahty indispensable in the case of a labouring class, even to any 
tolerable degree of physical comfort ; and by which the peasantry of 
France, and of most European countries of peasant proprietors, are 
distinguished beyond any other labouring population. 

» 
§ 4. Is it likely that a state of economical relations so con- 
ducive to frugahty and prudence in every other respect, should be 
prejudicial to it in the cardinal point of increase of population ? 
That it is so, is the opinion expressed by most of those Enghsh 
poHtical economists who have written anything about the matcer. 



28S BOOK IL CHAPTER VII. § 4 

Mr. M'CuUocli's opinion is well known. Mr. Jones aiSirms,* tliat a 
" peasant population raising their own wages from the soil, and 
consuming them in kind, are universally acted upon very feebly by 
internal checks, or by motives disposing them to restraint. The 
consequence is, that unless some external cause, quite independent 
of their will, forces such peasant cultivators to slacken their rate 
of increase, they will, in a limited territory, very rapidly approach 
a state of want and penury, and will be stopped at last only by the 
physical impossibility of procuring subsistence." He elsewhere f 
speaks of such a peasantry as " exactly in the condition in which 
the animal disposition to increase their numbers is checked by the 
fewest of those balancing motives and desires which regulate the 
increase of superior ranks or more civiHzed people." The " causes of 
this peculiarity," Mr. Jones promised to point out in a subsequent 
work, which never made its appearance. I am totally unable to con- 
jecture from what theory of human nature, and of the motives which 
influence human conduct, he would have derived them. Arthur 
Young assumes the same " pecuharity," as a fact ; but, though not 
much in the habit of quaUfying his opinions, he does not push his 
doctrine to so violent an extreme as Mr. Jones ; having, as we have 
seen, himself testified to various instances in which peasant popula- 
tions such as Mr. Jones speaks of, were not tending to " a state of 
want and penury," and were in no danger whatever of coming into 
contact with " physical impossibility of procuring subsistence." 

That there should be discrepancy of experience on this matter, 
is easily to be accounted for. Whether the labouring people live 
by land or by wages, they have always hitherto multipUed up to the 
limit set by their habitual standard of comfort. When that standard 
was low, not exceeding a scanty subsistence, the size of properties, 
as well as the rate of wages, has been kept down to what would 
barely support Hfe. Extremely low ideas of what is necessary for 
subsistence, are perfectly compatible with peasant properties ; and 
if a people have always been used to poverty, and habit has recon- 
ciled them to it, there will be over-population, and excessive sub- 
division of land. But this is not to the purpose. The true question is, 
supposing a peasantry to possess land not insufficient but sufficient 
for their comfortable support, are they more, or less, Hkely to fall 
from this state of comfort through improvident multipHcation, 
than if they were living in an equally comfortable manner as hired 

* Essay on the Distribution of Wealth, p. 146. [Peasant Rents, p. 132.] 
t Ibid. p. 68. [Peasant Rents, p. 59.] 



PEASANT PROPRIETORS 289 

labourers ? All d 'priori considerations are in favour of their being 
less likely. The dependence of wages on population is a matter 
of speculation and discussion. That wages would fall if population 
were much increased is often a matter of real doubt, and always 
a thing which requires some exercise of the thinking faculty for 
its intelhgent recognition. But every peasant can satisfy himself 
from evidence which he can fully appreciate, whether his piece of 
land can be made to support several families in the same comfort 
as it supports one. Few people Hke to leave to their children 
a worse lot in life than their own. The parent who has land to 
leave is perfectly able to judge whether the children can hve upon 
it or not : but people who are supported by wages see no reason 
why their sons should be unable to support themselves in the same 
way, and trust accordingly to chance. "In even the most useful 
and necessary arts and manufactures," says Mr. Laing,* " the 
demand for labourers is not a seen, known, steady, and appreciable 
demand : but it is so in husbandry " under small properties. " The 
labour to be done, the subsistence that labour will produce out of 
his portion of land, are seen and known elements in a man's cal- 
culation upon his means of subsistence. Can his square of land, 
or can it not, subsist a family ? Can he marry or not ? are questions 
which every man can answer without delay, doubt, or speculation. 
It is the depending on chance, where judgment has nothing clearly 
set before it, that causes reckless, improvident marriages in the 
lower, as in the higher classes, and produces among us the evils 
of over-population ; and chance necessarily enters into every man's 
calculations, when certainty is removed altogether ; as it is, where 
certain subsistence is, by our distribution of property, the lot of 
but a small portion instead of about two-thirds of the people." 

There never has been a writer more keenly sensible of the evils 
brought upon the labouring classes by excess of population than 
Sismondi, and this is one of the grounds of his earnest advocacy of 
peasant properties. He had ample opportunity, in more countries 
than one, for judging of their effect on population. Let us see his 
testimony. " In the countries in which cultivation by small pro- 
prietors stiU continues, population increases regularly and rapidly 
until it has attained its natural hmits ; that is to say, inheritances 
continue to be divided and subdivided among several sons, as long 
as, by an increase of labour, each family can extract an equal in- 
come from a smaller portion of land. A father who possessed a 

♦ Notes of a Traveller, p. 46. 

L 



290 BOOK II. CHAPTER VII. § 4 

vast extent of natural pasture, divides it among liis sons, and they 
turn it into fields and meadows ; his sons divide it among their sons, 
who abolish fallows : each improvement in agricultural knowledge 
admits of another step in the subdivision of property. But there 
is no danger lest the proprietor should bring up his children to make 
beggars of them. He knows exactly what inheritance he has to 
leave them ; he knows that the law will divide it equally among 
them ; he sees the limit beyond which this division would make 
them descend from the rank which he has himself filled, and a just 
family pride, common to the peasant and to the nobleman, makes 
him abstain from summoning into hfe children for whom he cannot 
properly provide. If more are born, at least they do not marry, or 
they agree among themselves which of several brothers shall per- 
petuate the family. It is not found that in the Swiss Cantons the 
patrimonies of the peasants are ever so divided as to reduce them 
below an honourable competence ; though the habit of foreign 
service, by opening to the children a career indefinite and uncal- 
culable, sometimes calls forth a super-abundant population." * 

There is similar testimony respecting Norway. Though there is 
no law or custom of primogeniture, and no manufactures to take off 
a surplus population, the subdivision of property is not carried to an 
injurious extent. " Tbe division of the land among children," 
says Mr. Laing,t " appears not, during the thousand years it has 
been in operation, to have had the effect of reducing the landed 
properties to the minimum size that will barely support human 
existence. I have counted from five- and- twenty to forty cows 
upon farms, and that in a country in which the farmer must, for at 
least seven months in the year, have winter provender and houses 
provided for all the cattle. It is evident that some cause or other, 
operating on aggregation of landed property, counteracts the divid- 
ing effects, of partition among children. That cause can be no 
other than what I have long conjectured would be effective in such 
a social arrangement ; viz. that in a country where land is held, not 
in tenancy merely, as in Ireland, but in full ownership, its aggrega- 
tion by the deaths of co-heirs, and by the marriages of the female 
heirs among the body of landholders, will balance its subdivision 
by the equal succession of children. The whole mass of property 
will, I conceive, be found in such a state of society to consist of as 
many estates of the class of lOOOZ.j as many of 100?., as many of 10/., 
a year, at one period as another." That this should happen, supposes 

* Nouveaux Princifts, Book iii. ch. 3. f Residence in Norway, p. 18. 



PEASANT PBOPKIETORS 291 

difEused through society a very efficacious prudential check to popula- 
tion ; and it is reasonable to give part of the credit of this prudential 
restraint to the peculiar adaptation of the peasant-proprietary 
system for fostering it. 

1 " In some parts of Switzerland," says Mr. Kay,* " as in the 
canton of Argovie for instance, a peasant never marries before he 
attains the age of twenty-five years, and generally much later in life ; 
and in that canton the women very seldom marry before they have 
attained the age of thirty. . . . Nor do the division of land and the 
cheapness of the mode of conveying it from one man to another 
encourage the providence of the labourers of the rural districts only. 
They act in the same manner, though perhaps in a less degree, upon 
the labourers of the smaller towns. In the smaller provincial towns 
it is customary for a labourer to own a small plot of ground outside 
the town. This plot he cultivates in the evening as his kitchen 
garden. He raises in it vegetables and fruits for the use of his 
family during the winter. After his day's work is over, he and his 
family repair to the garden for a short time, which they spend in 
planting, sowing, weeding, or preparing for sowing or harvest, 
according to the season. The desire to become possessed of one of 
these gardens operates very strongly in strengthening prudential 
habits and in restraining improvident marriages. Some of the 
manufacturers in the canton of Argovie told me that a townsman 
was seldom contented until he had bought a garden, or a garden and 
house, and that the town labourers generally deferred their marriages 
for some years, in order to save enough to purchase either one or 
both of these luxuries." 

The same writer shows by statistical evidence t that in Prussia 
the average age of marriage is not only much later than in England, 
but " is gradually becoming later than it was formerly," while at 
the same time " fewer illegitimate children are born in Prussia than 
in any other of the European countries." " Wherever I travelled," 
says Mr. Kay, { " in North Germany and Switzerland, I was assured 
by all that the desire to obtain land, which was felt by all the 
peasants, was acting as the strongest possible check upon undue 
increase of population." § 

In Flanders, according to Mr. Fauche, the British Consul at 

' [This and the next two paragraphs were added in the 3rd ed. (1852).] 
* Vol. i. pp. 67-9. t Vol. i. pp. 75-9. $ Ibid. p. 90. 

§ The Prussian minister of statistics, in a work {Der VolkswoTilstand im 
Preussischen Staate) which I am obliged to quote at second hand from Mr. Kav, 
after proving by figures the great and progressive increase of the consumption 



292 BOOK 11. CHAPTER VII. § 4 

Ostend,* " farmers' sons and those wlio have the means to become 
farmers will delay their marriage until they get possession of a 
farm." Once a farmer, the next object is to become a proprietor. 
" The first thing a Dane does with his savings," says Mr. Browne, 
the Consul at Copenhagen,! *' is to purchase a clock, then a horse 
and cow, which he hires out, and which pays a good interest. Then 
his ambition is to become a petty proprietor, and this class of 
persons is better off than any in Denmark. Indeed, I know of no 
people in any country who have more easily within their reach all 
that is really necessary for life than this class, which is very large in 
comparison with that of labourers." 

But the experience which most decidedly contradicts the asserted 
tendency of peasant proprietorship to produce excess of population, 
is the case of France. In that country the experiment is not tried 
in the most favourable circumstances, a large proportion of the 
properties being too small. The number of landed proprietors in 
France is not exactly ascertained, but on no estimate does it fall 
much short of five millions ; which, on the lowest calculation of the 
number of persons of a family (and for France it ought to be a low 
calculation), shows much more than half the population as either 
possessing, or entitled to inherit, landed property. A majority of 
the properties are so small as not to afford a subsistence to the pro- 
prietors, of whom, according to some computations, as many as 
three millions are obliged to eke out their means of support either 
by working for hire, or by taking additional land, generally on 
metayer tenure. When the property possessed is not sufficient to 
relieve the possessor from dependence on wages, the condition of a 
proprietor loses much of its characteristic efficacy as a check to 
over-population : and if the prediction so often made in England 
had been realized, and France had become a " pauper warren," the 
experiment would have proved nothing against the tendencies of 
the same system of agricultural economy in other circumstances. 
But what is the fact ? That the rate of increase of the French 

of food and clothing per head of the population, from which he justly infers a 
corresponding increase of the productiveness of agriculture, continues : *' The 
division of estates has, since 1831, proceeded more and more throughout the 
country. There are now many more small independent proprietors than 
formerly. Yet, however many complaints of pauperism are heard among the 
dependent labourers, we never hear it complained that pauperism is increasing 
among the peasant proprietors." — Kay, i. 262-6. 

* In a communication to the Commissioners of Poor Law Enquiry, p. 640 
of their Foreign Communications, Appendix F to their First Report. 

t Ibid. 268. 



J/JSASAJNT i'KOJfKlEiaKS^ 



^U3^ 



population is the slowest in Europe. During the generation which 

the Kevolution raised from the extreme of hopeless wretchedness to 

sudden abundance, a great increase of population took place. But 

a generation has grown up, which, having been born in improved 

circumstances, has not learnt to be miserable ; and upon them the 

spirit of thrift operates most conspicuously, in keeping the increase 

of population within the increase of national wealth. In a table 

drawn up by Professor Rau,* of the rate of annual increase of the 

* The following is the table (see p. 168 of the Belgian translation of Mr. 
Rau's large work) : 

Per cent. 
United States . 1820-30 . .2-92 
Hungary (according to Rohrer) 2-40 



England 


1811-21 


jj • • • 


1821-31 


Austria (Rohrer) 


, , 


Prussia . . . 


1816-27 


» ... 


1820-30 


5> ... 


1821-31 


Netherlands 


1821-28 



1-78 
1-60 
1-30 
1-54 
1-37 
1-27 
1-28 



Per cent. 
Scotland . . 1821-31 . .1-30 
Saxony . . . 1815-30 . .1-15 
Baden . 1820-30 (Heunisch) M3 
Bavaria . . 1814-28 . .1-08 
Naples . . . 1814-24 . . 0-83 
France . . 1817-27 (Mathieu) 0'63 
and more recently (Moreau de 
Jonnes) . . .... 055 



But the number given by Moreau de Jonnes, he adds, is not entitled to 
implicit confidence. 

The following table given by M. Quetelet {Sur V Homme et le Developpement 
de ses Facultes, vol. i. ch. 7) also on the authority of Rau, contains additional 
matter, and differs in some items from the preceding, probably from the author's 
having taken, in those cases, an average of different years : 
Per cent. Per cent. 

Rhenish Prussia . 1 -33 
Austria . . .1-30 
Bavaria . . .1*08 
Netherlands . .0-94 



Ireland 


. . 2-45 


Hungary . 


. . 2-40 


Spain . 


. . 166 


England . 


. . 1-65 



Naples . 
France . 
Sweden 
Lombardy . 

A very carefully prepared statement, by M. Legoyt, in the Journal des 
Economistes for May 1847, which brings up the results for France to the census 
of the preceding year 1846, is summed up in the following table ": 



Per cent. 
. 0-83 
. 0-63 
. 0-58 
. 0-45 









According 
to the 
census. 


According to 

the excess 

of births over 

deaths. 




According 
to the 
census. 


According to 

the excess 

of births over 

deattis. 




per cent. 


per cent. 


per cent. 


per cent. 


Sweden 


0-83 


M4 


Wurtemburg . 


0-01 


1-00 


Norway 






1-36 


1-30 


Holland 


0-90 


103 


Denmark 






, , 


0-95 


Belgium 


. , 


0-76 


Russia . 






. , 


061 


Sardinia 


1-08 


, ^ 


Austria 






0-85 


0-90 


Great Britain 


-^ 




Prussia 






1-84 


M8 


(exclusive 


[ 1-95 


1-00 


Saxony 






1-45 


0-90 


of Ireland) 


) 




Hanover 






, , 


0-85 


France . 


0-68 


0-50 


Bavaria 








0-71 


United States. 


3-27 


• • 



294 BOOK II. CHAPTER VII. § 4 

populations of various countries, that of France, from 1817 to 1827, 
is stated at y%\ per cent, that of England during a similar decennial 
period being 1^-^ annually, and that of the United States nearly 3. 
According to the official returns as analysed by M. Legoyt,* the 
increase of the population, which from 1801 to 1806 was at the rate 
of 1'28 per cent annually, averaged only 0*47 per cent from 1806 to 
1831 ; from 1831 to 1836 it averaged 0-60 per cent ; from 1836 to 
1841, 0-4:1 per cent, and from 1841 to 1846, 0*68 per cent.f ^ At 
the census of 1851 the rate of annual increase shown was only 1'08 
per cent in the five years, or 0*21 annually ; and at the census of 
1856 only 0*71 per cent in five years, or 0*14 annually : so that, in 
the words of M. de Lavergne, " la population ne s'accroit presque 
plus en France." J Even this slow increase is wholly the effect of 
a diminution of deaths ; the number of births not increasing at 
all, while the proportion of the births to the population is constantly 
diminishing.§ This slow growth of the numbers of the people, while 

* Journal des Economistes for March and May 1847. 

t M. Legoyt is of opinion that the population was understated in 1841, and 
the increase between that time and 1846 consequently overstated, and that the 
real increase during the whole period was something intermediate between the 
last two averages, or not much more than one in two hundred. 

^ [This sentence was added to the 4th ed. (1857).] 

X Journal des Economistes for February 1847. — [1865] In the Journal for 
January 1865, M. Legoyt gives some of the numbers slightly altered, and I 
presume corrected. The series of percentages is 1*28, 0-31, 0*69, 0*60, 0*41, 
0"68, 0*22, and 0*20. The last census in the table, that of 1861, shows a slight 
reaction, the percentage, independently of the newly acquired departments, 
being 0*32. [M. Emile Levasseur {La Population Francaise, 1889, vol. i. p. 315) 
cites a calculation of ]\I. Loua, according to which the increase per cent for the 
territory which has constituted France since 1871, was for the period 1801-1821 
0-56; 1821-1841,0-59; 1841-1861,0*36; 1861-1881,0*27.] 

§ The following are the numbers given by M, Legoyt : 

From 1824 to 1828 | annual number ( 981,914, being 1 in 32*30 "^ of the popu- 
) of births 1 S lation. 

„ 1829 to 1833 „ 965,444, „ 1 in 34*00 ' 

„ 1834 to 1838 „ 972,993, „ 1 in 34*39 

„ 1839 to 1843 „ 970,617, „ 1 in 35*27 

„ 1844 and 1845 „ 983,573, „ 1 in 35*58 

In the last two years the births, according to M. Legoyt, were swelled by 
the effects of a considerable immigration. " This diminution of births," he 
observes, " while there is a constant, though not a rapid increase both of popu- 
lation and of marriages, can only be attributed to the progress of prudence and 
forethought in families. It was a foreseen consequence of our civil and social 
institutions, which, producing a daily increasing subdivision of fortunes, both 
landed and moveable, call forth in our people the instincts of conservation and 
of comfort." 

In four departments, among which are two of the most thriving in Nor- 
mandy, the deaths even then exceeded the births. — [1857] The census of 1856 



PEASANT PEOPRIETORS 296 

capital increases mucli more rapidly, has caused a noticeable im- 
provement in the condition of the labouring class. The circumstances 
of that portion of the class who are landed proprietors are not 
easily ascertained with precision, being of course extremely variable ; 
but the mere labourers, who derived no direct benefit from the 
changes in landed property which took place at the Kevolution, 
have unquestionably much improved in condition since that period.* 

exhibits the remarkable fact of a positive diminution in the population of 54 
out of the 86 departments. A significant comment on the pauper-warren 
theory. See M. de Lavergne's analysis of the returns. 

* " The classes of our population which have only wages, and are therefore 
the most exposed to indigence, are now (1846) much better provided with the 
necessaries of food, lodging, and clothing than they were at the beginning of the 
century. This may be proved by the testimony of all persons who can re- 
member the earlier of the two periods compared. Were there any doubts on 
the subject they might easily be dissipated by consulting old cultivators and 
workmen, as I have myself done in various localities, without meeting with a 
single contrary testimony ; we may also appeal to the facts collected by an 
accurate observer, M. Villerme {Tableau de VEtat Physique et Moral des Ouvriers, 
Uv. ii. ch. i.)." From an intelligent work published in 1846, Recherches sur les 
Causes de V Indigence, par A. Clement, pp. 84-5. The same writer speaks 
(p. 118) of: "the considerable rise which has taken place since 1789 in the 
wages of agricultural day-labourers ; " and adds the following evidence of a 
higher standard of habitual requirements, even in that portion of the town 
population, the state of which is usually represented as most deplorable. 
" In the last fifteen or twenty years a considerable change has taken place in 
the habits of the operatives in our manufacturing towns : they now expend 
much more than formerly on clothing and ornament. . . , Certain classes of 
workpeople, such as the canuts of Lyons," (according to all representations, Hke 
their counterpart, our handloom weavers, the very worst paid class of artizans,) 
" no longer show themselves, as they did formerly, covered with filthy rags." 
(Page 164.) 

[1862] The preceding statements were given in former editions of this work, 
being the best to which I had at the time access ; but evidence, both of a 
more recent, and of a more minute and precise character, will now be found 
in the important work of M. Leonce de Lavergne, Economie Rurale de la France 
depuis 1789. According to that painstaking, well-informed, and most impartial 
enquirer, the average daily wages of a French labourer have risen, since the 
commencement of the Revolution, in the ratio of 19 to 30, while, owing to the 
more constant employment, the total earnings have increased in a still greater 
ratio, not short of double. The following are the words of M. de Lavergne 
(2nd ed. p. 57) : " Arthur Young estimates at 19 sous [9^d.] the average of a 
day's wages, which must now be about 1 franc 50 centimes [Is. Zd.}, and this 
increase only represents a part of the improvement. Though the rural popu- 
lation has remained about the same in numbers, the addition made to the 
population since 1789 having centred in the towns, the number of actual 
working days has increased, first because, the duration of life having augmented, 
the number of able-bodied men is greater, and next, because labour is better 
organized, partly through the suppression of several festival-holidays, partly 
by the mere effect of a more active demand. When we take into account the ■ 
increased number of his working days, the annual receipts of the rural work- 
man must have doubled. This augmentation of wages answers to at least an 
equal augmentation of comforts, since the prices of the chief necessaries of life 
have changed but little, and those of manufactured, for example of woven 



296 BOOK II. CHAPTER VII. § 5 

Dr. Kau testifies to a similar fact in tlie case of another country 
in whicli the subdivision of the land is probably excessive, the 
Palatinate.* 

I am not aware of a single authentic instance "which supports 
the assertion that rapid multipHcation is promoted by peasant 
properties. Instances may undoubtedly be cited of its not being 
prevented by them, and one of the principal of these is Belgium ; 
the prospects of which, in respect to population, are at present a 
matter of considerable uncertainty. Belgium has the most rapidly 
increasing population on the Continent ; and when the circum- 
stances of the country require, as they must soon do, that this 
rapidity should be checked, there will be a considerable strength of 
existing habit to be broken through. One of the unfavourable 
circumstances is the great power possessed over the minds of the 
people by the Catholic priesthood, whose influence is everywhere 
strongly exerted against restraining population. As yet, however, 
it must be remembered that the indefatigable industry and great 
agricultural skill of the people have rendered the existing rapidity of 
increase practically innocuous ; the great number of large estates 
still undivided affording by their gradual dismemberment a resource 
for the necessary augmentation of the gross produce ; and there are, 
besides, many large manufacturing towns, and mining and coal 
districts, which attract and employ a considerable portion of the 
annual increase of population. 

§ 5. But even where peasant properties are accompanied by 

articles, have materially diminished. The lodging of the labourers has also 
improved, if not in all, at least in most of our provinces." 

M. de Lavergne's estimate of the average amount of a day's wages is 
grounded on a careful comparison, in this and in all other economical points of 
view, of all the different provinces of France. 

* In his little book on the agriculture of the Palatinate, already cited. 
He says that the daily wages of labour, which during the last years of the war 
were unusually high, and so continued until 1817, afterwards sank to a lower 
money-rate, but that the prices of many commodities having fallen in a still 
greater proportion, the condition of the people was unequivocally improved. 
The food given to farm labourers by their employers has also greatly improved 
in quantity and quality. " It is to-day considerably better than it was about 
forty years ago, when the poorer class obtained less flesh-meat and puddings, 
and no cheese, butter, and the like " (p. 20). " Such an increase of wages " 
(adds the Professor), *' which must be estimated not in money, but in the 
quantity of necessaries and conveniences which the labourer is enabled to 
procure, is, by universal admission, a proof that the mass of capital must have 
increased." It proves not only this, but also that the labouring population 
has not increased in an equal degree ; and that, in this instance as well as in 
that of France, the division of the land, even when excessive, has been com- 
patible with a strengthening of the prudential checks to population. 



PEASANT PROPRIETORS 297 

an excess of numbers, this evil is not necessarily attended with the 
additional economical disadvantage of too great a subdivision of the 
land. It does not follow because landed property is minutely 
divided, that farms will be so. As large properties are perfectly 
compatible with small farms, so are small properties with farms of 
an adequate size ; and a subdivision of occupancy is not an in- 
evitable consequence of even undue multiplication among peasant 
proprietors. As might be expected from their admirable intelUgence 
in things relating to their occupation, the Flemish peasantry have 
long learnt this lesson. " The habit of not dividing properties," 
says Dr. Eau,* " and the opinion that this is advantageous, have 
been so completely preserved in Flanders, that even now, when a 
peasant dies leaving several children, they do not think of dividing 
his patrimony, though it be neither entailed nor settled in trust ; 
they prefer selhng it entire, and sharing the proceeds, considering it 
as a jewel which loses its value when it is divided." That the same 
feehng must prevail widely even in France, is shown by the great 
frequency of sales of land, amounting in ten years to a fourth part 
of the whole soil of the country : and M. Passy, in his tract On 
the Changes in the Agricultural Condition of the Department of the 
Eure since the year 1800, t states other facts tending to the 
same conclusion. " The example," says he, " of this department 
attests that there does not exist, as some writers have imagined, 
between the distribution of property and that of cultivation, a con- 
nexion which tends invincibly to assimilate them. In no portion 
of it have changes of ownership had a perceptible influence on the 
size of holdings. While, in districts of small farming, lands belong- 
ing to the same owner are ordinarily distributed among many tenants, 
so neither is it uncommon, in places where the grande culture pre- 
vails, for the same farmer to rent the lands of several proprietors. 
In the plains of Vexin, in particular, many active and rich culti- 
vators do not content themselves with a single farm ; others add to 
the lands of their principal holding all those in the neighbourhood 
which they are able to hire, and in this manner make up a total 
extent which in some cases reaches or exceeds two hundred hec- 
tares " (five hundred Enghsh acres). " The more the estates are 

* Page 334 of the Brussels translation. He cites as an authority, Schwerz, 
Landwirthschaftliche Mittheilungen, i. 185. 

f One of the many important papers which have appeared in the Journal 
des Economisfes, the organ of the principal political economists of France, and 
doing great and increasing honour to their knowledge and ability. M. Passy's 
essay has been reprinted separately in a pamphlet. 



2m BOOK II. CHAPTER VII. § 5 

dismembered, tlie more frequent do this sort of arrangements 
become : and as tbey conduce to the interest of all concerned, it is 
probable that time will confirm them," 

1 " In some places," says M. de Lavergne,* " in the neighbour- 
hood of Paris, for example, where the advantages of the grande 
culture become evident, the size of farms tends to increase, several 
farms are thrown together into one, and farmers enlarge their 
holdings by renting parcelles from a number of different proprietors. 
Elsewhere farms, as well as properties of too great extent, tend to 
division. Cultivation spontaneously finds out the organization 
which suits it best." It is a striking fact, stated by the same eminent 
writer, t that the departments which have the greatest number of 
small cotes foticieres, are the Nord, the Somme, the Pas de Calais, 
the Seine Inferieure, the Aisne, and the Oise ; all of them among 
the richest and best cultivated, and the first-mentioned of them 
the very richest and best cultivated, in France. 

Undue subdivision, and excessive smallness of holdings, are 
undoubtedly a prevalent evil in some countries of peasant pro- 
prietors, and particularly in parts of Germany and France. The 
governments of Bavaria and Nassau have thought it necessary to 
impose a legal Hmit to subdivision, and the Prussian Government 
unsuccessfully proposed the same measure to the Estates of its 
Rhenish Provinces. But I do not think it will anywhere be found 
that the petite culture is the system of the peasants, and the grande 
culture that of the great landlords : on the contrary, wherever the 
small properties are divided among too many proprietors, I beHeve 
it to be true that the large properties also are parcelled out among 
too many farmers, and that the cause is the same in both cases, a 
backward state of capital, skill, and agricultural enterprise. There 
is reason to beHeve that the subdivision in France is not more 
excessive than is accounted for by this cause ; that it is diminish- 
ing, not increasing ; and that the terror expressed in some quarters, 
at the progress of the morcellement^ is one of the most groundless of 
real or pretended panics. % 

^ [This paragraph was added in the 5th ed. (1862).] 

* Economie Rurale de la France, p. 455. 

t P. 117. See, for facts of a siroilar tendency, pp. 141, 250, and other 
passages of the same important treatise : which, on the other hand, equally 
abounds with evidence of the mischievous effect of subdivision when too 
minute, or when the nature of the soil and of its products is not suitable 
to it. 

{ [1852] Mr. Laing, in his latest publication, Observations on the Social 
and Political State of the European People in 1848 and 1849t a book devoted 



PEASANT PROPRIETORS 299 

If peasant properties have any effect in promoting subdivision 
beyond the degree which corresponds to the agricultural practices 
of the country, and which is customary on its large estates, the 
cause must lie in one of the salutary influences of the system ; the 
eminent degree in which it promotes providence on the part of those 
who, not being yet peasant proprietors, hope to become so. In 
England, where the agricultural labourer has no investment for his 
savings but the savings bank, and no position to which he can rise by 
any exercise of economy, except perhaps that of a petty shopkeeper, 
with its chances of bankruptcy, there is nothing at all resembling 
the intense spirit of thrift which takes possession of one who, from 
being a day labourer, can raise himself by saving to the condition of 
a landed proprietor. According to almost all authorities, the real 
cause of the morcellement is the higher price which can be obtained 
for land by selling it to the peasantry, as an investment for their 
small accumulations, than by disposing of it entire to some rich 
purchaser who has no object but to live on its income, without 
improving it. The hope of obtaining such an investment is the 
most powerful of inducements, to those who are without land, to 
practise the industry, frugaUty, and self-restraint, on which their 
success in this object of ambition is dependent. 

As the result of this enquiry into the direct operation and indirect 

to the glorification of England and the disparagement of everything elsewhere 
which others, or even he himself in former works, had thought worthy of praise, 
argues that *' although the land itself is not divided and subdivided " on the 
death of the proprietor, " the value of the land is, and with effects almost as 
prejudicial to social progress. The value of each share becomes a debt or 
burden upon the land." Consequently the condition of the agricultural popu- 
lation is retrograde ; " each generation is worse off than the preceding one, 
although the land is neither less nor more divided, nor worse cultivated." And 
this he gives as the explanation of the great indebtedness of the small landed 
proprietors in France (pp. 97-9). If these statements were correct, they would 
invalidate all which Mr. Laing affirmed so positively in other writings, and 
repeats in this, respecting the peculiar efficacy of the possession of land in 
preventing over-population. But he is entirely mistaken as to the matter of fact. 
In the only country of which he speaks from actual residence, Norway, he 
does not pretend that the condition of the peasant proprietors is deteriorating. 
The facts already cited prove that in respect to Belgium, Germany, and Switzer- 
land, he assertion is equally wide of the mark ; and what has been shown 
respecting the slow increase of population in France, demonstrates that if the 
condition of the French peasantry was deteriorating, it could not be from the 
cause supposed by Mr. Laing. The truth I believe to be that in every country 
without exception, in which peasant properties prevail, the condition of the 
people is improving, the produce of the land and even its fertility increasing, 
and from the larger surplus which remains after feeding the agricultural classes, 
the towns are augmenting both in population and in the well-being of their 
Inhabitants. 



300 BOOK 11. CHAPTER VIL § 5 

influences of peasant properties, I conceive it to be established, 
that tbere is no necessary connexion between tbis form of landed 
property and an imperfect state of the arts of production ; that it 
is favourable in quite as many respects as it is unfavourable, to the 
most effective use of the powers of the soil ; that no other existing 
state of agricultural economy has so beneficial an effect on the 
industry, the intelligence, the frugality, and prudence of the popula- 
tion, nor tends on the whole so much to discourage an improvident 
increase of their numbers ; and that no existing state, therefore, is 
on the whole so favourable both to their moral and their physical 
welfare. Compared with the English system of cultivation by hired 
labour, it must be regarded as eminently beneficial to the labouring 
class.* We are not on the present occasion called upon to 

* French history strikingly confirms these conclusions. Three times during 
the course of ages the peasantry have been purchasers of land ; and these 
times immediately preceded the three principal eras of French agricultural 
prosperity. 

"In the worst times," says the historian Michelet {Le Peuple, Ire partie, 
eh. 1), " the times of universal poverty, when even the rich are poor and obliged 
to sell, the poor are enabled to buy : no other purchaser presenting himself, 
the peasant in rags arrives with his piece of gold, and acquires a little bit of 
land. These moments of disaster in which the peasant was able to buy land 
at a low price, have always been followed by a sudden gush of prosperity which 
people could not account for. Towards 1500, for example, when France, ex- 
hausted by Louis XI., seemed to be completing its ruin in Italy, the noblesse 
who went to the wars were obliged to sell : the land, passing into new 
hands, suddenly began to flourish : men began to labour and to build. 
This happy moment, in the style of courtly historians, was called the good 
Louis XII. 

" Unhappily it did not last long. Scarcely had the land recovered itself 
when the tax-collector fell upon it ; the wars of religion followed, and seemed 
to rase everything to the ground ; with horrible miseries, dreadful famines, 
in which mothers devoured their children. Who would believe that the country 
recovered from this ? Scarcely is the war ended, when from the devastated 
fields, and the cottages still black with the flames, comes forth the hoard of 
the peasant. He buys ; in ten years, France wears a new face ; in twenty or 
thirty, all possessions have doubled and trebled in value. This moment, 
again baptized by a royal name, is called the good Henry IV. and the great 
Richelieu.^ ^ 

Of the third era it is needless again to speak : it was that of the 
Revolution. 

Whoever would study the reverse of the picture, may compare these historic 
periods, characterized by the dismemberment of large and the construction of 
small properties, with the wide-spread national suffering which accompanied, 
and the permanent deterioration of the condition of the labouring classes which 
followed the "clearing " away of small yeomen to make room for large grazing 
farms, which was the grand economical event of English history during the 
sixteenth century. [This quotation from Michelet originally came at the end 
of chapter x, infra, on Means of Abolishing Cottier Tenancy. It was transferred 
to its present position in the 6th ed. (1862).] 



PEASANT PROPRIETORS 301 

compare it with the joint ownership of the land by associations of 
labourers.^ 

1 [The last two sentences replaced in the 3rd ed. (1852) the concluding 
sentence of the original text : " Whether and in what these considerations 
admit of useful application to any of the social questions of our time, will be 
considered in a future chapter." 

The position of peasant proprietors in Germany in more recent decades 
may be studied in Buchenberger, Agrarwesen, one of the volumes in ^Wagner's 
Lehrhuch der Politischen Oekonomie (1892), §§ 69, 70, 73; Blondel, JStudes sur 
les Populations Rurales de VAllemagne (1897); and David, Sozialismus and 
Landwirthschaft (1903). As to whether morcellement is progressing in France, 
eee Gide, Economic Soctale (1905), pp. 429 seq.} 



CHAPTER VIII 



OP METAYERS 



§ 1. From tlie case in wliich the produce of land and labour 
belongs undividedly to the labourer, we proceed to the cases in 
which it is divided, but between two classes only, the labourers and 
the landowners : the character of capitalists merging in the one or 
the other, as the case may be. It is possible indeed to conceive that 
there might be only two classes of persons to share the produce, and 
that the class of capitaUsts might be one of them ; the character of 
labourer and that of landowner being united to form the other. 
This might occur in two ways. The labourers, though owning the 
land, might let it to a tenant, and work under him as hired servants. 
But this arrangement, even in the very rare cases which could give 
rise to it, would not require any particular discussion, since it would 
not differ in any material respect from . the threefold system of 
labourers, capitalists, and landlords. The other case is the not 
uncommon one, in which a peasant proprietor owns and cultivates 
the land, but raises the little capital required by a mortgage upon 
it. Neither does this case present any important pecuHarity. 
There is but one person, the peasant himself, who has any right or 
power of interference in the management. He pays a fixed annuity 
as interest to a capitalist, as he pays another fixed sum in taxes to 
the government. Without dwelHng further on these cases, we pass 
to those which present marked features of pecuUarity. 

When the two parties sharing in the produce are the labourer or 
labourers and the landowner, it is not a very material circumstance 
in the case which of the two furnishes the stock, or whether, as 
sometimes happens, they furnish it in a determinate proportion 
between them. The essential difference does not he in this, but in 
another circumstance, namely, whether the division of the produce 
between the two is regulated by custom or by competition. We 
will begin with the former case ; of which the metayer culture is 
the principal, and in Europe almost the sole, example. 



METAYERS 303 

The principle of the metayer system is that the labourer, or 
peasant, makes his engagement directly with the landowner, and 
pays, not a fixed rent, either in money or in kind, but a certain 
proportion of the produce, or rather of what remains of the produce 
after deducting what is considered necessary to keep up the stock. 
The proportion is usually, as the name imports, one-half ; but in 
several districts in Italy it is two-thirds. Respecting the supply of 
stock, the custom varies from place to place ; in some places the 
landlord furnishes the whole, in others half, in others some particular 
part, as for instance the cattle and seed, the labourer providing the 
implements.* " This connexion," says Sismondi, speaking chiefly 
of Tuscany,! " is often the subject of a contract, to define certain 
services and certain occasional payments to which the metayer binds 
himself ; nevertheless the differences in the obligations of one such 
contract and another are inconsiderable ; usage governs alike all 
these engagements, and supplies the stipulations which have not 
been expressed ; and the landlord who attempted to depart from 
usage, who exacted more than his neighbour, who took for the basis 
of the agreement anything but the equal division of the crops, would 
render himself so odious, he would be so sure of not obtaining a 
metayer who was an honest man, that the contract of all the metayers 
may be considered as identical, at least in each province, and never 
gives rise to any competition among peasants in search of employ- 
ment, or any offer to cultivate the soil on cheaper terms than one 
another." To the same effect Chateauvieux, J speaking of the 
metayers of Piedmont. " They consider it " (the farm) "as a 
patrimony, and never think of renewing the lease, but go on from 

* In France before the Revolution, according to Arthur Young (i. 403), 
there was great local diversity in this respect. In Champagne " the land- 
lord commonly finds half the cattle and half the seed, and the metayer, labour, 
implements, and taxes ; but in some districts the Iq-ndlord bears a share of these. 
In Roussillon, the landlord pays half the taxes ; and in Guienne, from Auch to 
Fleuran, many landlords pay all. Near Augillon, on the Garonne, the metayers 
furnish half the cattle. At Nangis, in the Isle of France, I met with an agree- 
ment for the landlord to furnish Uve stock, implements, harness, and taxes ; the 
metayer found labour and his own capitation tax : the landlord repaired the 
house and gates, the metayer the windows : the landlord provided seed the 
first year, the metayer the last ; in the intervening years they supply half and 
half. In the Bourbonnois the landlord finds all sorts of live stock, yet the 
metayer sells, changes, and buys at his will ; the steward keeping an account 
of these mutations, for the landlord has half the product of sales, and pays 
half the purchases." In Piedmont, he says, " the landlord commonly pays the 
taxes and repairs the buildings, and the tenant provides cattle, implements, 
and seed." (ii. 151.) 

f Etudes sur VEconomie Politiqu9t 6me essai : De la Condition des Cul- 
tivateurs en Toscane. 

J Letters from Italy. I quote from Dr. Rigby's translation, (p. 22). 



304 BOOK II. CHAPTER VIII. § 2 

generation to generation, on tlie same terms, without writings or 
registries." * 

§ 2. When the partition of the produce is a matter of fixed 

usage, not of varying convention, political economy has no laws 

of distribution to investigate. It has only to consider, as in the 

case of peasant proprietors, the effects of the system first on the 

condition of the peasantry, morally and physically, and secondly, 

on the efficiency of the labour. In both these particulars the 

metayer system has the characteristic advantages of peasant 

properties, but has them in a less degree. The metayer has less 

motive to exertion than the peasant proprietor, since only half the 

fruits of his industry, instead of the whole, are his own. But he 

has a much stronger motive than a day labourer, who has no other 

interest in the result than not to be dismissed. If the metayer 

cannot be turned out except for some violation of his contract, he 

has a stronger motive to exertion than any tenant-farmer who has 

not a lease. The metayer is at least his landlord's partner, and a 

half-sharer in their joint gains. Where, too, the permanence of 

his tenure is guaranteed by custom, he acquires local attachments, 

and much of the feelings of a proprietor. I am supposing that 

this half produce is sufficient to yield him a comfortable support. 

Whether it is so, depends (in any given state of agriculture) 

on the degree of subdivision of the land ; which depends on 

the operation of the population principle. A multiplication of 

people, beyond the number that can be properly supported on the 

land or taken off by manufactures, is incident even to a peasant 

proprietary, and of course not less but rather more incident to a 

metayer population. The tendency, however, which we noticed 

in the proprietary system, to promote prudence on this point, is 

in no small degree common to it with the metayer system. There, 

also, it is a matter of easy and exact calculation whether a family 

can be supported or not. If it is easy to see whether the owner of 

the whole produce can increase the production so as to maintain a 

* This virtual fixity of tenure is not however universal even in Italy ; and 
it is to its absence that Sismondi attributes the inferior condition of the 
metayers in some provinces of Naples, in Lucca, and in the Riviera of Genoa ; 
where the landlords obtain a larger (though still a fixed) share of the produce. 
In those countries the cultivation is splendid, but the people wretchedly poor. 
" The same misfortune would probably have befallen the people of Tuscany if 
public opinion did not protect the cultivator ; but a proprietor would not dare 
to impose conditions unusual in the country, and even in changing one metayer 
for^ another he alters nothing in the terms of the engagement." — Nouveaux 
Principes, liv. iii. ch. 5. 



METAYERS 305 

greater number of persons equally well, it is not a less simple problem 
whether the owner of half the produce can do so.* There is one 
check which this system seems to offer, over and above those held 
out even by the proprietary system ; there is a landlord, who may 
exert a controlling power, by refusing his consent to a subdivision. 
I do not, however, attach great importance to this check, because 
the farm may be loaded with superfluous hands without being sub- 
divided ; and because, so long as the increase of hands increases the 
gross produce, which is almost always the case, the landlord, who 
receives half the produce, is an immediate gainer, the inconvenience 
falling only on the labourers. The landlord is no doubt liable in 
the end to suffer from their poverty, by being forced to make 
advances to them, especially in bad seasons ; and a foresight of 
this ultimate inconvenience may operate beneficially on such land- 
lords as prefer future security to present profit. 

The characteristic disadvantage of the metayer system is very 
fairly stated by Adam Smith. After pointing out that metayers 
*' have a plain interest that the whole produce should be as great 
as possible, in order that their own proportion may be so," he 
continues, t " it could never, however, be the interest of this species 
of cultivators to lay out, in the further improvement of the land, any 
part of the little stock which they might save from their own share 
of the produce, because the lord who laid out nothing was to get 
one-half of whatever it produced. The tithe, which is but a tenth 
of the produce, is found to be a very great hindrance to improvement. 
A tax, therefore, which amounted to one-half, must have been an 

* M. Bastiat affirms that even in France, incontestably the least favour 
able example of the metayer system, its effect in repressing population is 
conspicuous. 

" It is a well-ascertained fact that the tendency to excessive multiplication 
is chiefly manifested in the class who live on wages. Over these the forethought 
which retards marriages has little operation, because the evils which flow from 
excessive competition appear to them only very confusedly, and at a consider- 
able distance. It is, therefore, the most advantageous condition of a people to 
be so organized as to contain no regular class of labourers for hire. In metayer 
countries, marriages are principally determined by the demands of cultivation ; 
they increase when, from whatever cause, the metairies offer vacancies injurious 
to production ; they diminish when the places are filled up. A fact easily ascer- 
tained, the proportion between the size of the farm and the number of hands, 
operates like forethought, and with greater effect. We find, accordingly, that 
when nothing occurs to make an opening for a superfluous population, numbers 
remain stationary : as is seen in our southern departments." Considerations 
sur le Metayage, Journal des Economistes for February 1846. [The description 
of Bastiat as "a high authority among French political economists " was 
omitted from the 3rd ed. (1852).] 

f Wealth of Nations, book iii. ch. 2. 



306 BOOK II. CHAPTER VIU. § 3 

effectual bar to it. It might be the interest of a metayer to make 
the land produce as much as could be brought out of it by means 
of the stock furnished by the proprietor ; but it could never be 
his interest to mix any part of his own with it. In France, where 
five parts out of six of the whole kingdom are said to be still occupied 
by this species of cultivators, the proprietors complain that their 
metayers take every opportunity of employing the master's cattle 
rather in carriage than in cultivation ; because in the one case they 
get the whole profits to themselves, in the other they share them 
with their landlord." It is indeed implied in the very nature of the 
tenure that all improvements which require expenditure of capital 
must be made with the capital of the landlord. This, however, is 
essentially the case even in England, whenever the farmers are 
tenants-at-will : or (if Arthur Young is right) even on a " nine years' 
lease." If the landlord is willing to provide capital for improve- 
ments, the metayer has the strongest interest in promoting them, 
since half the benefit of them will accrue to himself. As however 
the perpetuity of tenure which, in the case we are discussing, he 
enjoys by custom, renders his consent a necessary condition ; the 
spirit of routine, and disUke of innovation, characteristic of an 
agricultural people when not corrected by education, are no doubt, 
as the advocates of the system seem to admit, a serious hindrance to 
improvement. 

§ 3. The metayer system has met with no mercy from English 
authorities. " There is not one word to be said in favour of the 
practice," says Arthur Young,* and a " thousand arguments that 
might be used against it. The hard plea of necessity can alone be 
urged in its favour ; the poverty of the farmers being so great, 
that the landlord must stock the farm, or it could not be stocked at 
all : this is a most cruel burden to a proprietor, who is thus obliged 
to run much of the hazard of farming in the most dangerous of 
all methods, that of trusting his property absolutely in the hands 
of people who are generally ignorant, many careless, and some 
undoubtedly wicked. ... In this most miserable of all the modes of 
letting land, the defrauded landlord receives a contemptible rent ; 
the farmer is in the lowest state of poverty ; the land is miserably 
cultivated ; and the nation suffers as severely as the parties 
themselves. . , . Wherever f this system prevails, it may be taken 
for granted that a useless and miserable population is found. . . . 
* Travels, vol. i. pp. 404-5. f Ibid. vol. ii. 151-3. 



METAYERS 307 

Wherever the country (that I saw) is poor and imwatered, in the 
Milanese, it is in the hands of metayers ; they are almost always 
in debt to their landlord for seed or food, and " their condition is 
more wretched than that of a day labourer. . . , There * are but 
few districts " (in Italy) " where lands are let to the occupying 
tenant at a money-rent ; but wherever it is found, their crops are 
greater ; a clear proof of the imbecihty of the metaying system." 
" Wherever it " (the metayer system) " has been adopted," says 
Mr. M'Culloch,t "it has put a stop to all improvement, and has 
reduced the cultivators to the most abject poverty." Mr. Jones { 
shares the common opinion, and quotes Turgot and Destutt-Tracy 
in support of it. The impression, however, of all these writers 
(notwithstanding Arthur Young's occasional references to Italy) 
seems to be chiefly derived from France, and France before the 
Eevolution.§ Now the situation of French metayers under the old 
regime by no means represents the typical form of the contract. 
It is essential to that form that the proprietor pays all the taxes. 
But in France the exemption of the noblesse from direct taxation 
had led the Government to throw the whole burthen of their ever- 
increasing fiscal exactions upon the occupiers : and it is to these 
exactions that Turgot ascribed the extreme wretchedness of the 
metayers : a wretchedness in some cases so excessive, that in 
Limousin and Angoumois (the provinces which he administered) 
they had seldom more, according to him, after deducting all burthens, 
than from twenty-five to thirty livres (20 to 24 shillings) per head 
for their whole annual consumption ; " je ne dis pas en argent, 
mais en comptant tout ce qu'ils consomment en nature sur ce qu'ils 
ont recolte." || When we add that they had not the virtual fixity 

* Travels^ vol. ii. 217. 

t Principles of Political Economy^ 3rd. ed. p. 471. 

% Essay on the Distribution of Wealth, pp. 102-4. [PeasarU Rents, pp. 90-92.] 

§ M. de Tracy is partially an exception, inasmuch as his experience reaches 
lower down than the revolutionary period ; but he admits (as Mr. Jones has 
himself stated in another place) that he is acquainted only with a limited dis- 
trict, of great subdivision and unfertile soiL 

M. Passy is of opinion, that a French peasantry must be in indigence and 
the country badly cultivated on a metayer system, because the proportion of 
the produce claimable by the landlord is too high ; it being only in more favour- 
able climates that any land, not of the most exuberant fertility, can pay half 
its gross produce in rent, and leave enough to peasant farmers to enable them 
to grow successfully the more expensive and valuable products of agriculture. 
{Systemes de Culture, p. 35.) This is an objection only to a particular numerical 
proportion, which is indeed the common one, but is not essential to the system. 

Ii See the " Memoire sur la Surcharge des Impositions qu'eprouvait la 
Generalite de Limoges, adresse au Conseil d'Etat en 1766," pp. 260-304 of 
the fourth volume of Turgot's Works. The occasional engagements of landlords 



308 BOOK II. CHAPTER VIIL § 3 

of tenure of the metayers of Italy (" in Limousin," says Arthur 
Young,* " the metayers are considered as little better than menial 
servants, removable at pleasure, and obliged to conform in all 
things to the will of the landlords,") it is evident that their case 
affords no argument against the metayer system in its better form. 
A population who could call nothing their own, who, like the Irish 
cottiers, could not in any contingency be worse off, had nothing to 
restrain them from multiplying, and subdividing the land, until 
stopped by actual starvation. 

We shall find a very different picture, by the most accurate 
authorities, of the metayer cultivation of Italy. In the first place, 
as to subdivision. In Lombardy, according to Chateau vieux,| 
there are few farms which exceed fifty acres, and few which have less 
than ten. These farms are all occupied by metayers at half profit. 
They invariably display " an extent { and a richness in buildings 
rarely known in any other country in Europe." Their plan " affords 
the greatest room with the least extent of building ; is best adapted 
to arrange and secure the crop ; and is, at the same time, the most 
economical, and the least exposed to accidents by fire." The 
courtyard " exhibits a whole so regular and commodious, and a 
system of such care and good order, that our dirty and ill-arranged 
farms can convey no adequate idea of." The same description 
applies to Piedmont. The rotation of crops is excellent. " I 
should think § no country can bring so large a portion of its produce 
to market as Piedmont." Though the soil is not naturally very 
fertile, " the number of cities is prodigiously great." The agricul- 
ture must, therefore, be eminently favourable to the net as well as 
to the gross produce of the land. " Each plough works thirty- two 
acres in the season. . . . Nothing can be more perfect or neater 
than the hoeing and moulding up the maize, when in full growth, 
by a single plough, with a pair of oxen, without injury to a single 
plant, while all the weeds are effectually destroyed." So much for 
agricultural skill. " Nothing can be so excellent as the crop which 
precedes and that which follows it." The wheat " is thrashed by a 
cylinder, drawn by a horse, and guided by a boy, while the labourers 

(as mentioned by Arthur Young) to pay a part of the taxes, were, according to 
Turgot, of recent origin, under the compulsion of actual necessity. " The pro- 
prietor only consents to it when he can find no metayer on other terms ; conse- 
quently, even in that case, the metayer is always reduced to what is barely 
sufficient to prevent him from dying of hunger" (p. 275). 

* Vol. i. p. 404. 

f Letters from Italy, translated by Rigby, p. 16. 

X Ibid. pp. 19, 20, § Ibid. pp. 24-31. 



METAYERS 309 

turn over the straw with forks. This process lasts nearly a fortnight ; 
it is quick and economical, and completely gets out the grain. . . . 
In no part of the world are the economy and the management of 
the land better understood than in Piedmont, and this explains 
the phenomenon of its great population, and immense export of 
provisions." All this under metayer cultivation. 

Of the valley of the Arno, in its whole extent, both above and 
below Florence, the same writer thus speaks :*— " Forests of olive- 
trees covered the lower parts of the mountains, and by their foliage 
concealed an infinite number of small farms, which peopled these 
parts of the mountains ; chestnut- trees raised their heads on the 
higher slopes, their healthy verdure contrasting with the pale tint 
of the olive-trees, and spreading a brightness over this amphitheatre. 
The road was bordered on each*side with village-houses, not more 
than a hundred paces from each other. . . . They are placed at 
a httle distance from the road, and separated from it by a wall, 
and a terrace of some feet in extent. On the wall are commonly 
placed many vases of antique forms, in which flowers, aloes, and 
young orange-trees are growing. The house itself is completely 
covered with vines. . . . Before these houses we saw groups of 
peasant females dressed in white linen, silk corsets, and straw-hats, 
ornamented with flowers. . . . These houses being so near each 
other, it is evident that the land annexed to them must be small, 
and that property, in these valleys, must be very much divided ; 
the extent of these domains being from three to ten acres. The 
land lies round the houses, and is divided into fields by small canals, 
or rows of trees, some of which are mulberry-trees, but the greatest 
number poplars, the leaves of which are eaten by the cattle. Each 
tree supports a vine. . . . These divisions, arrayed in oblong 
squares, are large enough to be cultivated by a plough without wheels 
and a pair of oxen. There is a pair of oxen between ten or twelve 
of the farmers ; they employ them successively in the cultivation 
of all the farms. . . . Almost every farm maintains a well-looking 
horse, which goes in a small two-wheeled cart, neatly made, and 
painted red ; they serve for all the purposes of draught for the 
farm, and also to convey the farmer's daughters to mass and to 
balls. Thus, on hoUdays, hundreds of these little carts are seen 
flying in all directions, carrying the young women, decorated with 
flowers and ribbons." 

This is not a picture of poverty ; and so far as agriculture 

* Pp. 78-9. 



310 BOOK II. CHAPTER VIIL § 3 

is concerned, it effectually redeems metayer cultivation, as existing 
in these countries, from the reproaches of English writers ; but with 
respect to the condition of the cultivators, Chateauvieux's testi- 
mony is, in some points, not so favourable. " It is* neither the 
natural fertility of the soil, nor the abundance which strikes the eye 
of the traveller, which constitute the well-being of its inhabitants. It 
is the number of individuals among whom the total produce is 
divided, which fixes the portion that each is enabled to enjoy. 
Here it is very small. I have thus far, indeed, exhibited a delightful 
country, well watered, fertile, and covered with a perpetual vegeta- 
tion ; I have shown it divided into countless enclosures, which, 
hke so many beds in a garden, display a thousand varying pro- 
ductions ; I have shown, that to all these enclosures are attached 
well-built houses, clothed with vines, and decorated with flowers ; 
but, on entering them, we find a total want of all the conveniences 
of life, a table more than frugal, and a general appearance of priva- 
tion." Is not Chateauvieux here unconsciously contrasting the 
condition of the metayers with that of the farmers of other countries, 
when the'proper standard with which to compare it is that of the 
agricultural day-labourers ? 

Arthur Young says,")" " I was assured that these metayers are 
(especially near Florence) much at their ease ; that on hoUdays 
they are dressed remarkably well, and not without objects of 
luxury, as silver, gold, and silk ; and live well, on plenty of bread, 
wine, and. legumes. In some instances this may possibly be the 
case, but the general fact is contrary. It is absurd to think that 
metayers, upon such a farm as is cultivated by a pair of oxen, can 
live at their ease ; and a clear proof of their poverty is this, that 
the landlord, who provides half the live stock, is often obhged to 
lend the peasant money to procure his half. . . . The metayers, 
not in the vicinity of the city, are so poor^ that landlords even 
lend them corn.to eat : their food is black bread, made of a mixture 
with vetches ; and their drink is very Httle wine mixed with water, 
and called aquarolle ; meat on Sundays only ; their dress very 
ordinary." Mr. Jones admits the superior comfort of the metayers 
near Florence, and attributes it partly to straw-platting, by which 
the women of the peasantry can earn, according to Ghateauvieux,J 
from fifteen to twenty pence a day. But even this fact tells in 
favour of the metayer system : for in those parts of England in 

* Pp. 73-6. t Travels, vol. ii. p. 156. 

J Letters from Italy, p. 7§. 



METAYERS 311 

which either straw -platting or lace-making is carried on by the 
women and children of the labouring class, as in Bedfordshire 
and Buckinghamshire, the condition of the class is not better, but 
rather worse than elsewhere, the wages of agricultural labour 
being depressed by a full equivalent. 

In spite of Chateauvieux's statement respecting the poverty 
of the metayers, his opinion, in respect to Italy at least, is given 
in favour of the system. " It occupies * and constantly interests 
the proprietors, which is never the case with great proprietors 
who lease their estates at fixed rents. It establishes a community 
of interests, and relations of kindness between the proprietors and 
the metayers ; a kindness which I have often witnessed, and from 
which result great advantages in the moral condition of society. 
The proprietor under this system, always interested in the success 
of the crop, never refuses to make an advance upon it, which the 
land promises to repay with interest. It is by these advances 
and by the hope thus inspired, that the rich proprietors of land 
have gradually perfected the whole rural economy of Italy. It is 
to them that it owes the numerous systems of irrigation which 
water its soil, as also the establishment of the terrace culture on 
the hills : gradual but permanent improvements, which common 
peasants, for want of means, could never have effected, and which 
could never have been accomplished by the farmers, nor by the 
great proprietors who let their estates at fixed rents, because they are 
not sufficiently interested. Thus the interested system forms of 
itself that alliance between the rich proprietor, whose means provide 
for the improvement of the culture, and the metayer whose care 
and labour are directed, by a common interest, to make the most 
of these advances." 

But the testimony most favourable to the system is that cf 
Sismondi, which has the advantage of being specific, and from 
accurate knowledge ; his information being not that of a traveller, 
but of a resident proprietor, intimately acquainted with rural life. 
His statements apply to Tuscany generally, and more particularly 
to the Val di Nievole, in which his own property lay, and which is not 
within the supposed privileged circle immediately round Florence. 
It is one of the districts in which the size of farms appears to be the 
smallest. The following is his description of the dwellings and 
mode of life of the metayers of that district.f 

* Letters from Italy, pp. 295-6. 

t From hiis Sixth Essay, formerly referred to. 



312 BOOK II. CHAPTER VIII. § 3 

" The house, built of good walls with lime and mortar, has always 
at least one story, sometimes two, above the ground floor. On the 
ground floor are generally the kitchen, a cowhouse for two horned 
cattle, and the storehouse, which takes its name, tinaia, from the 
large vats (tini) in which the wine is put to ferment, without any 
pressing : it is there also that the metayer locks up his casks, his 
oil, and his grain. Almost always there is also a shed supported 
against the house, where he can work under cover to mend his 
tools, or chop forage for his cattle. On the first and second stories 
are two, three, and often four bedrooms. The largest and most 
airy of these is generally destined by the metayer, in the months of 
May and June, to the bringing up of silkworms. Great chests to 
contain clothes and Unen, and some wooden chairs, are the chief 
furniture of the chambers ; but a newly-married wife always brings 
with her a wardrobe of walnut wood. The beds are uncurtained and 
unroofed, but on each of them, besides a good paillasse filled with 
the elastic straw of the maize plant, there are one or two mattresses of 
wool, or, among the poorest, of tow, a good blanket, sheets of strong 
hempen cloth, and on the best bed of the family a coverlet of silk 
padding, which is spread on festival days. The only fireplace is in 
the kitchen ; and there also is the great wooden table where the 
family dines, and the benches ; the great chest which serves at 
once for keeping the bread and other provisions, and for kneading ; 
a tolerably complete though cheap assortment of pans, dishes, and 
earthenware plates : one or two metal lamps, a steelyard, and at 
least two copper pitchers for drawing and holding water. The 
linen and the working clothes of the family have all been spun 
by the women of the house. The clothes, both of men and of 
women, are of the stuff called mezza lana when thick, mola when 
thin, and made of a coarse thread of hemp or tow, filled up with 
cotton or wool ; it is dried by the same women by whom it is spun. 
It would hardly be believed what a quantity of cloth and of mezza 
lana the peasant women are able to accumulate by assiduous 
industry ; how many sheets there are in the store ; what a number 
of shirts, jackets, trowsers, petticoats, and gowns are possessed 
by every member of the family. By way of example I add in 
a note the inventory of the peasant family best known to me : 
it is neither one of the richest nor of the poorest, and fives happily 
by its industry on half the produce of less than ten arpents of 
land.* The young women had a marriage portion of fifty crowns, 

* Inventory of the trousseau of Jane, daughter of Valente Papini, on her 



METAYEES 313 

twenty paid down, and tlie rest by instalments of two every year. 
The Tuscan crown is worth six francs [4s. lOd.]. The commonest 
marriage portion of a peasant girl in the other parts of Tuscany, 
where the metairies are larger, is 100 crowns, 600 francs." 

Is this poverty, or consistent with poverty ? When a common, 
M. de Sismondi even says the common, marriage portion of a 
metayer's daughter is 24L EngHsh money, equivalent to at least 501. 
in Italy and in that rank of life ; when one whose dowry is only 
half that amount, has the wardrobe described, which is represented 
by Sismondi as a fair average ; the class must be fully comparable, 
in general condition, to a large proportion even of capitaHst farmers 
in other countries ; and incomparably above the day-labourers 
of any country, except a new colony, or the United States. Very 
little can be inferred, against such evidence, from a traveller's 
impression of the poor quaUty of their food. Its unexpensive 
character may be rather the efiect of economy than of necessity. 
Costly feeding is not the favourite luxury of a southern people ; 
their diet in all classes is principally vegetable, and no peasantry on 
the Continent has the superstition of the English labourer respecting 
white bread. But the nourishment of the Tuscan peasant, according 
to Sismondi, " is wholesome and various : its basis is an excellent 
w^heaten bread, brown, but pure from bran and from all mixture. 
In the bad season they take but two meals a day : at ten in 
the morning they eat their poUenta, at the beginning of the night 
their soup, and after it bread with a reHsh of some sort {companatico). 
In summer they have three meals, at eight, at one, and in the evening ; 
but the fire is lighted only once a day, for dinner, which consists 
of soup, and a dish of salt meat or dried fish, or haricots, or greens, 
which are eaten with bread. Salt meat enters in a very small quantity 
into this diet, for it is reckoned that forty pounds of salt pork 
per head sufiice amply for a year's provision ; twice a week a small 
piece of it is put into the soup. On Sundays they have always on 

marriage with Giovacchino Landi, the 29th of April 1835, at Porta Vecchia, near 
Pescia : 

" 28 shifts, 7 best dresses (of particular fabrics of silk), 7 dresses of printed 
cotton, 2 winter working dresses {mezza lana), 3 summer working dresses and 
petticoats {mola), 3 white petticoats, 5 aprons of printed linen, 1 of black silk, 
1 of black merino, 9 coloured working aprons {mola), 4 white, 8 coloured, and 
3 silk, handkerchiefs, 2 embroidered veils and one of tulle, 3 towels, 14 pairs of 
stockings, 2 hats (one of felt, the other of fine straw) ; 2 cameos set in gold, 2 
golden earrings, 1 chaplet with two Roman silver crowns, 1 coral necklace with 
its cross of gold. . . . All the richer married women of the class have, besides, 
the veste di seta, the great holiday dress, which they only wear four or five times 
in their lives," 



314 BOOK IL CHAPTER VIII. § 3 

the table a dish of fresh meat, but a piece which weighs only a pound 
or a pound and a half suffices for the whole family, however numerous 
it may be. It must not be forgotten that the Tuscan peasants 
generally produce oUve oil for their own consumption : they use 
it not only for lamps, but as seasoning to all the vegetables prepared 
for the table, which it renders both more savoury and more nutritive. 
At breakfast their food is bread, and sometimes cheese and fruit ; 
at supper, bread and salad. Their drink is composed of the inferior 
wine of the country, the vinella or fiquette made by fermenting in 
water the pressed skins of the grapes. They always, however, reserve 
a little of their best wine for the day when they thresh their corn, and 
for some festivals which are kept in famiUes. About fifty bottles 
of vinella per annum and five sacks of wheat (about 1000 pounds 
of bread) are considered as the supply necessary for a full grown 
man." 

The remarks of Sismondi on the moral influences of this state 
of society are not less worthy of attention. The rights and obliga- 
tions of the metayer being fixed by usage, and all taxes and rates 
being paid by the proprietor, " the metayer has the advantages 
of landed property without the burthen of defending it. It is the 
landlord to whom, with the land, belong all its disputes : the tenant 
lives in peace with all his neighbours ; between him and them 
there is no motive for rivalry or distrust, he preserves a good under- 
standing with them, as well as with his landlord, with the tax- 
collector, and with the church : he sells Httle, and buys little ; he 
touches little money, but he seldom has any to pay. The gentle and 
kindly character of the Tuscans is often spoken of, but without 
sufficiently remarking the cause which has contributed most to 
keep up that gentleness ; the tenure, by which the entire class 
of farmers, more than three-fourths of the population, are kept 
free from almost every occasion for quarrel." The fixity of tenure 
which the metayer, so long as he fulfils his own obHgations, possesses 
by usage, though not by law, gives him the local attachments, 
and almost the strong sense of personal interest, characteristic 
of a proprietor. " The metayer lives on his metairie as on his 
inheritance, loving it with affection, labouring incessantly to improve 
it, confiding in the future, and making sure that his land will be 
tilled after him by his children and his children's children. In fact 
the majority of metayers five from generation to generation on 
the same farm ; they know it in its details with a minuteness 
which the feeUng of property can alone give. The plots terrassed 



ap, one above the otter, are often not above four feet wide ; but 

there is not one of them, the quahties of which the metayer has 

not studied. This one is dry, the other is cold and damp : here 

the soil is deep, there it is a mere crust which hardly covers the 

rock ; wheat thrives best on one, rye on another : here it would be 

labour wasted to sow Indian corn, elsewhere the soil is unfit for 

beans and lupins, further off flax will grow admirably, the edge of 

this brook will be suited for hemp. In this way one learns with 

surprise from the metayer, that in a space of ten arpents, the soil, 

the aspect, and the inclination of the ground present greater variety 

than a rich farmer is generally able to distinguish in a farm of five 

hundred acres. For the latter knows that he is only a temporary 

occupant ; and moreover, that he must conduct his operations by 

general rules, and neglect details. But the experienced metayer 

has had his intelhgence so awakened by interest and affection, 

as to be the best of observers ; and with the whole future before 

him, he thinks not of himself alone, but of his children and 

grandchildren. Therefore, when he plants an olive, a tree which 

lasts for centuries, and excavates at the bottom of the hollow 

in which he plants it a channel to let out the water by which it 

would be injured, he studies all the strata of the earth which he 

has to dig out." * 

§ 4. I do not offer these quotations as evidence of the intrinsic 
excellence of the metayer system ; but they surely suffice to prove 
that neither '* land miserably cultivated " nor a people in " the most 
abject poverty'* have any necessary connexion with it, and that the 
unmeasured vituperation lavished upon the system by English 
writers is grounded on an extremely narrow view of the subject. 

* Of the intelligence of this interesting people, M. de Sismondi speaks in the 
moat favourable terms. Few of them can read ; but there is often one member 
of the family destined for the priesthood, who reads to them on winter evenings. 
Their language differs little from the purest Italian. The taste for improvisation 
in verse is general. " The peasants of the Vale of jNievole frequent the theatre 
in summer on festival days, from nine to eleven at night : their admission costs 
them little more than 6ve French sous [2|rf.]. Their favourite author is Alfieri ; 
the whole history of the Atridge is familiar to these people who cannot read, and 
who seek from that austere poet a relaxation from their rude labours." Unlike 
most rustics, they 6nd pleasure in the beauty of their country. " In the hills of 
the vale of Nievole there is in front of every house a threshing-ground, seldom of 
more than 25 or 30 square fathoms ; it is often the only level space in the whole 
farm ; it is at the same time a terrace which commands the plains and the valley, 
and looks out upon a delightful country. Scarcely ever have I stood still to 
admire it, without the metayer's coming out to enjoy my admiration, and point 
out with his finger the beauties which he thought might have escaped my notice." 



316 BOOK 11. CHAPTER VIII. § 4 

I look upon the rural economy of Italy as simply so much additional 
evidence in favour of small occupations with permanent tenure. It 
is an example of what can be accomphshed by those two elements, 
even under the disadvantage of the peculiar nature of the metayer 
contract, in which the motives to exertion on the part of the tenant 
are only half as strong as if he farmed the land on the same footing 
of perpetuity at a money-rent, either fixed, or varying according 
to some rule which would leave to the tenant the whole benefit 
of his own exertions. The metayer tenure is not one which we 
should be anxious to introduce where the exigencies of society 
had not naturally given birth to it ; but neither ought we to be 
eager to abolish it on a mere a 'priori view of its disadvantages. 
If the system in Tuscany works as well in practice as it is represented 
to do, with every appearance of minute knowledge, by so competent 
an authority as Sismondi ; if the mode of Hving of the people, and 
the size of farms, have for ages maintained and still maintain them- 
selves * such as they are said to be by him, it were to be regretted 
that a state of rural well-being so much beyond what is reahzed in 
most European countries, should be put to hazard by an attempt 
to introduce, under the guise of agricultural improvement, a system 
of money-rents and capitaHst farmers. Even where the metayers 
are poor, and the subdivision great, it is not to be assumed, as of 
course, that the change would be for the better. The enlargement 
of farms, and the introduction of what are called agricultural 
improvements, usually diminish the number of labourers employed 
on the land ; and unless the growth of capital in trade and manu- 
factures affords an opening for the displaced population, or unless 
there are reclaimable wastes on which they can be located, 
competition will so reduce wages, that they will probably be worse 
off as day-labourers than they were as metayers. 

Mr. Jones very properly objects against the French Economists 
of the last century, that in pursuing their favourite object of intro- 
ducing money-rents, they turned their minds solely to putting 
farmers in the place of metayers, instead of transforming the existing 
metayers into farmers ; which, as he justly remarks, can scarcely 

* " We never, says Sismondi, " find a family of metayers proposing to their 
landlord to divide the metairie, unless the work is really more than they can do, 
and they feel assured of retaining the same enjoyments on a smaller piece of 
ground. We never find several sons all marrying, and forming as many new- 
families : only one marries and undertakes the charge of the household : none 
of the others marry unless the first is childless, or unless some one of them has 
the offer of a new metairie. ' ' New Principles of Political Economy, book iii. ch. 5. 



jjixLiXAiiiixvo an 



be effected, unless, to enable tbe metayers to save and become 
owners of stock, the proprietors submit for a considerable time to a 
diminution of income, instead of expecting an increase of it, wbich 
has generally been their immediate motive for making the attempt. 
If this transformation were effected, and no other change made in 
the metayer's condition ; if, preserving all the other rights which 
usage insures to him, he merely got rid of the landlord's claim to 
half the produce, paying in Ueu of it a moderate fixed rent ; he would 
be so far in a better position than at present, as the whole, instead 
of only half the fruits of any improvement he made, would now 
belong to himself ; but even so, the benefit would not be without 
alloy ; for a metayer, though not himself a capitaHst, has a capitahst 
for his partner, and has the use, in Italy at least, of a considerable 
capital, as is proved by the excellence of the farm buildings : and 
it is not probable that the landowners would any longer consent to 
peril their moveable property on the hazards of agricultural enter- 
prise, when assured of a fixed money income without it. Thus 
would the question stand, even if the change left undisturbed the 
metayer's virtual fixity of tenure, and converted him, in fact, into a 
peasant proprietor at a quitrent. But if we suppose him converted 
into a mere tenant, displaceable at the landlord's will, and Hable to 
have his rent raised by competition to any amount which any unfor- 
tunate being in search of subsistence can be found to offer or promise 
for it ; he would lose all the features in his condition which preserve 
it from being deteriorated ; he would be cast down from his present 
position of a kind of half proprietor of the land, and would sink into 
a cottier tenant. 



CHAPTER IX 

OP COTTIERS 

§ 1 . By the general appellation of cottier tenure I shall designate 
all cases without exception in which the labourer makes his contract 
for land without the intervention of a capitalist farmer, and in which 
the conditions of the contract, especially the amount of rent, are 
determined not by custom but by competition. The principal 
European example of this tenure is Ireland, and it is from that 
country that the term cottier is derived.* By far the greater part 
of the agricultural population of Ireland might until very lately 
have been said to be ^ cottier-tenants ; except so far as the Ulster 
tenant-right constituted an exception. There was, indeed, a nume- 
rous class of labourers who (we may presume through the refusal 
either of proprietors or of tenants in possession to permit any 
further subdivision) had been unable to obtain even the smallest 
patch of land as permanent tenants. But, from the deficiency of 
capital, the custom of paying wages in land was so universal, that 
even those who worked as casual labourers for the cottiers or for such 
large farmers as were found in the country, were usually paid not in 
money, but by permission to cultivate for the season a piece of ground 
which was generally delivered to them by the farmer ready manured, 
and was known by the name of conacre. For this they agreed to pay 
a money rent, often of several pounds an acre, but no money actually 
passed, the debt being worked out in labour, at a money valuation. 

The produce, on the cottier system, being divided into two 

"^ In its original acceptation, the word " cottier " designated a class of sub- 
tenants, who rent a cottage and an acre or two of land from the small farmers. 
But the usage of writers has long since stretched the term to include those small 
farmers themselves, and generally all peasant farmers whose rents are deter- 
mined by competition. 

1 [" May be said to be " in 1st ed. (1848) : altered as above in 5th ed. (1862). 
Similarly the account of the labourers in the following sentences was changed 
from the present to the past tense.] 



COTTIERS 319 

portions, rent, and the remuneration of the labourer ; the one is 
e^adentiy determined by the other. The labourer has whatever the 
landlord does not take : the condition of the labourer depends on 
the amount of rent. But rent, being regulated by competition, 
depends upon the relation between the demand for land, and the 
supply of it. The demand for land depends on the number of 
competitors, and the competitors are the whole rural population. 
The effect, therefore, of this tenure, is to bring the principle of popu- 
lation to act directly on the land, and not, as in England, on capital. 
Rent, in this state of things, depends on the proportion between 
population and land. As the land is a fixed quantity, while population 
has an unlimited power of increase ; unless something checks that 
increase, the competition for land soon forces up rent to the highest 
point consistent with keeping the population aUve. The effects, 
therefore, of cottier tenure depend on the extent to which the 
capacity of population to increase is controlled, either by custom, 
by individual prudence, or by starvation and disease. 

It would be an exaggeration to afl&rm that cottier tenancy is 
absolutely incompatible with a prosperous condition of the labouring 
class. If we could suppose it to exist among a people to whom a 
high standard of comfort was habitual ; whose requirements were 
such, that they would not offer a higher rent for land than would leave 
them an ample subsistence, and whose moderate increase of numbers 
left no unemployed population to force up rents by competition, 
save when the increasing produce of the land from increase of skill 
would enable a higher rent to be paid without inconvenience ; the 
cultivating class might be as well remunerated, might have as large 
a share of the necessaries and comforts of life, on this system of tenure 
as on any other. They would not, however, while their rents were 
arbitrary, enjoy any of the peculiar advantages which metayers on 
the Tuscan system derive from their connexion with the land. They 
would neither have the use of a capital belonging to their landlords, 
nor would the want of this be made up by the intense motives to 
bodily and mental exertion which act upon the peasant who has a 
permanent tenure. On the contrary, any increased value given to 
the land by the exertions of the tenant, would have no effect but to 
raise the rent against himself, either the next year, or at farthest when 
his lease expired. The landlords might have justice or good sense 
enough not to avail themselves of the advantage which competition 
would give them ; and different landlords would do so in different 
degrees. But it is never safe to expect that a class or body of men 



320 BOOK 11. CHAPTER IX. § 1 

will act in opposition to their immediate pecuniary interest ; and 
even a doubt on the subject would be almost as fatal as a certainty, 
for when a person is considering whether or not to undergo a present 
exertion or sacrifice for a comparatively remote future, the scale 
is turned by a very small probabiUty that the fruit& of the 
exertion or of the sacrifice will be taken away from him. The 
only safeguard against these uncertainties would be the growth of 
a custom, insuring a permanence of tenure in the same occupant, 
without HabiHty to any other increase of rent than might happen 
to be sanctioned by the general sentiments of the community. The 
Ulster tenant-right is such a custom. The very considerable sums 
which outgoing tenants obtain from their successors, for the goodwill 
of their farms,* in the first place actually Hmit the competition for 
land to persons who have such sums to offer : while the same fact 
also proves that full advantage is not taken by the landlord of 
even that more limited competition, since the landlord's rent does 
not amount to the whole of what the incoming tenant not only offers 
but actually pays. He does so in the full confidence that the rent 
will not be raised ; and for this he has the guarantee of a custom, 
not recognised by law, but deriving its binding force from another 
sanction, perfectly well understood in Ireland. f Without one or 
other of these supports, a custom limiting the rent of land is not 
Hkely to grow up in any progressive community. If wealth and 
population were stationary, rent also would generally be stationary, 
and after remaining a long time unaltered, would probably come 
to be considered unalterable. But all progress in wealth and 
population tends to a rise of rents. Under a metayer system there 
is an estabhshed mode in which the owner, of land is sure of 
participating in the increased produce drawn from it. But on the 

* " It is not uncommon for a tenant without a lease to sell tlie bare privilege 
of occupancy or possession of his farm, without any visible sign of improvement 
having been made by him, at from ten to sixteen, up to twenty and even forty 
years' purchase of the rent." — {Digest of Evidence taken by Lord Devon'' s Com- 
mission, Introductory Chapter.) The compiler adds, " the comparative tran- 
quillity of that district " (Ulster) " may perhaps be mainly attributable to 
this fact." 

f " It is in the great majority of cases not a reimbursement for outlay in- 
curred, or improvements effected on the land, but a mere life insurance or 
purchase of immunity from outrage." — {Digest, ut supra.) " The present 
tenant-right of Ulster " (the writer judiciously remarks) " is an embryo copt/- 
hold." " Even there, if the tenant-right be disregarded, and a tenant be ejected 
without having received the price of his goodwill, outrages are generally the 
consequence." — (Ch. viii.) " The disorganised state of Tipperary, and the 
agrarian combination throughout Ireland, are but a methodized war to obtain 
^he Ulster tenant-right." 



UUTTliiKS 321 

cottier system lie can only do so by a readjustment of the contract, 
while that readjustment, in a progressive community, would almost 
always be to his advantage. His interest, therefore, is decidedly 
opposed to the growth of any custom commuting rent into a 
fixed demand, 

§ 2. Where the amount of rent is not limited, either by law or 
custom, a cottier system has the disadvantages of the worst metayer 
system, with scarcely any of the advantages by which, in the best 
forms of that tenure, they are compensated. It is scarcely possible 
that cottier agriculture should be other than miserable. There is not 
the same necessity that the condition of the cultivators should be so. 
Since by a sufficient restraint on population competition for land could 
be kept down, and extreme poverty prevented ; habits of prudence 
and a high standard of comfort, once estabUshed, would have a fair 
chance of maintaining themselves : though even in these favourable 
circumstances the motives to prudence would be considerably weaker 
than in the case of metayers, protected by custom (like those of 
Tuscany) from being deprived of their farms : since a metayer family, 
thus protected, could not be impoverished by any other improvident 
multipUcation than their own, but a cottier family, however prudent 
and self-restraining, may have the rent raised against it by the 
consequences of the multiplication of other famihes. Any protection 
to the cottiers against this evil could only be derived from a salutary 
sentiment of duty or dignity, pervading the class. From this 
source, however, they might derive considerable protection. If the 
habitual standard of requirement among the class were high, a young 
man might not choose to offer a rent which would leave him in a 
worse condition than the preceding tenant ; or it might be the 
general custom, as it actually is in some countries, not to marry mitil 
a farm is vacant. 

But it is not where a high standard of comfort has rooted itself 
in the habits of the labouring class, that we are ever called upon to 
consider the effects of a cottier system. That system is found only 
where the habitual requirements of the rural labourers are the 
lowest possible ; where as long as they are not actually starving, 
they wiU multiply : and population is only checked by the diseases, 
and the shortness of life, consequent on insufficiency of merely 
physical necessaries. This was ^ the state of the largest portion of 
the Irish peasantry. When a people have sunk into this state, 
1 [" Is unhappily " until the 5th ed. (1862).] 

M 



322 BOOK II. CHAPTER IX. § 2 

and still more when they have been in it from time immemorial, 
the cottier system is an almost insuperable obstacle to their emerging 
from it. When the habits of the people are such that their increase 
is never checked but by the impossibihty of obtaining a bare support, 
and when this support can only be obtained from land, all stipulations 
and agreements respecting amount of rent are merely nominal ; 
the competition for land makes the tenants undertake to pay more 
than it is possible they should pay, and when they have paid all they 
can, more almost always remains due. 

"As it may fairly be said of the Irish peasantry," said Mr. 
Revans, the Secretary to the Irish Poor Law Enquiry Commission,* 
" that every family which has not sufficient land to yield its food has 
one or more of its members supported by begging, it will easily be 
conceived that every endeavour is made by the peasantry to obtain 
small holdings, and that they are not influenced in their biddings 
by the fertihty of the land, or by their abihty to pay the rent, but 
solely by the offer which is most hkely to gain them possession. 
The rents which they promise, they are almost invariably incapable 
of paying ; and consequently they become indebted to those under 
whom they hold, almost as soon as they take possession. They give 
up, in the shape of rent, the whole produce of the land with the 
exception of a sufficiency of potatoes for a subsistence ; but as this 
is rarely equal to the promised rent, they constantly have against 
them an increasing balance. In some cases, the largest quantity of 
produce which their holdings ever yielded, or which, under their 
system of tillage, they could in the most favourable seasons be made 
to yield, would not be equal to the rent bid ; consequently, if the 
peasant fulfilled his engagement with his landlord, which he is rarely 
able to accomplish, he would till the ground for nothing, and give 
his landlord a premium for being allowed to till it. On the sea- 
coast, fishermen, and in the northern counties those who have 
looms, frequently pay more in rent than the market value of the 
whole produce of the land they hold. It might be supposed that 
they would be better without land under such circumstances. But 
fishing might fail during a week or two, and so might the demand 
for the produce of the loom, when, did they not possess the land 
upon which their food is grown, they might starve. The full amount 
of the rent bid, however, is rarely paid. The peasant remains 

« Evils of the State of Ireland, their Causes and their Remedy. Page 10. 
A pamphlet containing, among other things, an excellent digest and selection 
of evidence from the mass collected by the Commission presided over by Arch- 
bishop Whately. 



COTTIERS 32^ 

Constantly in debt to his landlord ; his miserable possessions — the 
wretched clothing of himself and of his family, the two or three 
stools, and the few pieces of crockery, which his wretched hovel 
contains, would not, if sold, liquidate the standing and generally 
accumulating debt. The peasantry are mostly a year in arreaf, 
and their excuse for not paying more is destitution. Should the 
produce of the holding, in any year, be more than usually abundant, 
or should the peasant by any accident become possessed of any 
property, his comforts cannot be increased ; he cannot indulge in 
better food, nor in a greater quantity of it. His furniture cannot be 
increased, neither can his wife or children be better clothed. The ac- 
quisition must go to the person under whom he holds. The accidental 
addition will enable him to reduce his arrear of rent, and thus to 
defer ejectment. But this must be the bound of his expectation." 
As an extreme instance of the intensity of competition for land, 
and of the monstrous height to which it occasionally forced up the 
nominal rent ; we may cite from the evidence taken by Lord Devon's 
Commission,* a fact attested by Mr. Hurly, Clerk of the Crown for 
Kerry : *' I have known a tenant bid for a farm that I was perfectly 
well acquainted with, worth 501. a year : I saw the competition get 
up to such an extent, that he was declared the tenant at 450/." 

§ 3. In such a condition, what can a tenant gain by any amount 
of industry or prudence, and what lose by any recklessness ? If the 
landlord at any time exerted his full legal rights, the cottier would not 
be able even to Uve. If by extra exertion he doubled the produce 
of his bit of land, or if he prudently abstained from producing mouths 
to eat it up, his only gain would be to have more left to pay to his 
landlord ; while, if he had twenty children, they would still be fed 
first, and the landlord could only take what was left. Almost alone 
amongst mankind the cottier is in this condition, that he can scarcely 
be either better or worse off by any act of his own. If he were indus- 
trious or prudent, nobody but his landlord would gain ; if he is lazy 
or intemperate, it is at his landlord's expense. A situation more 
devoid of motives to either labour or self-command, imagination 
itself cannot conceive. The inducements of free human beings are 
taken away, and those of a slave not substituted. He has nothing 
to hope, and nothing to fear, except being dispossessed of his holding, 
and against this he protects himself by the ultima ratio of a defensive 
civil war. Rockism and Whiteboyism were ^ the determination of 
* Evidence, p. 851. ^ [" Are " until the 6th ed. (1862).] 



S24 B00:& 11, CHAPTEtl i:^. § 4 

a people who liad nothing that could be called theirs but a daily 
meal of the lowest description of food, not to submit to being deprived 
of that for other people's convenience. 

Is it not, then, a bitter satire on the mode in which opinions 
are formed on the most important problems of human nature and 
life, to find pubKc instructors of the greatest pretension, imputing the 
backwardness of Irish industry, and the want of energy of the Irish 
people in improving their condition, to a peculiar indolence and 
insouciance in the Celtic race ? Of all vulgar modes of escaping 
from the consideration of the efEect of social and moral influences 
on the human mind, the most vulgar is that of attributing the diver- 
sities of conduct and character to inherent natural differences. 
What race would not be indolent and insouciant when things are so 
arranged, that they derive no advantage from forethought or exer- 
tion ? If such are the arrangements in the midst of which they live 
and work, what wonder if the listlessness and indifference so 
engendered are not shaken off the first moment an opportunity 
offers when exertion would really be of use ? It is very natural that 
a pleasure-loving and sensitively organized people Hke the Irish, 
should be less addicted to steady routine labour than the EngHsh, 
because life has more excitements for them independent of it ; but 
they are not less fitted for it than their Celtic brethren the French, 
nor less so than the Tuscans, or the ancient Greeks. An excitable 
organization is precisely that in which, by adequate inducements, 
it is easiest to kindle a spirit of animated exertion. It speaks nothing 
against the capacities of industry in human beings, that they will not 
exert themselves without motive. No labourers work harder, in 
England or America, than the Irish ; but not under a cottier system. 

§ 4. The multitudes who till the soil of India, are in a condition 
sufficiently analogous to the cottier system, and at the same time 
sufficiently different from it, to render the comparison of the two 
a source of some instruction. In most parts of India there are, 
and perhaps have always been, only two contracting parties, the 
landlord and the peasant : the landlord being generally the sovereign, 
except where he has, by a special instrument, conceded his rights to 
an individual, who becomes his representative. The payments, 
however, of the peasants, or ryots as they are termed, have seldom 
if ever been regulated,, as in Ireland, by competition. Though the 
customs locally obtaining were infinitely various, and though practi- 
cally no custom could be maintained against the sovereign's will, 



COTTIERS 325 

there was always a rule of some sort conimon to a neiglibourliood ; 
the collector did not make his separate bargain with the peasant, 
but assessed each according to the rule adopted for the rest. The 
idea was thus kept up of a right of property in the tenant, or, at all 
events, of a right to permanent possession ; and the anomaly arose 
of a fixity of tenure in the peasant-farmer, co-existing with an 
arbitrary power of increasing the rent. 

When the Mogul government substituted itself throughout the 
greater part of India for the Hindoo rulers, it proceeded on a different 
principle. A minute survey was made of the land, and upon that 
survey an assessment was founded, fixing the specific payment due 
to the government from each field. If this assessment had never 
been exceeded, the ryots would have been in the comparatively 
advantageous position of peasant-proprietors, subject to a heavy, 
but a fixed quit-rent. The absence, however, of any real protection 
against illegal extortions, rendered this improvement in their con- 
dition rather nominal than real ; and, except during the occasional 
accident of a humane and vigorous local administrator, the exactions 
had no practical Hmit but the inability of the ryot to pay more. 

It was to this state of things that the EngHsh rulers of India 
succeeded ; and they were, at an early period, struck with the 
importance of putting an end to this arbitrary character of the land- 
revenue, and imposing a fixed Hmit to the government demand. 
They did not attempt to go back to the Mogul valuation. It has been 
in general the very rational practice of the EngHsh Government in 
India to pay Httle regard to what was laid down as the theory of the 
native institutions, but to inquire into the rights which existed and 
were respected in practice, and to protect and enlarge those. For a 
long time, however, it blundered grievously about matters of fact, 
and grossly misunderstood the usages and rights which it found 
existing. Its mistakes arose from the inabiHty of ordinary minds to 
imagine a state of social relations fundamentally different from those 
with which they are practicaUy familiar. England being accus- 
tomed to great estates and great landlords,' the EngHsh rulers took 
it for granted that India must possess the Hke ; and looking round for 
some set of people who might be taken for the objects of their search, 
they pitched upon a sort of tax-gatherers caUed zemiudars. " The 
zemindar," says the philosophical historian of India,* " had some 
of the attributes which belong to a landowner ; he coUected the 
rents of a particular district, he governed the cultivators of that 

* Mill's History of British India, book vi. ch. 8. 



326 BOOK II. CHAFrER IX. § 4 

district, lived in comparative splendour, and his son succeeded him 
when he died. The zemindars, therefore, it was inferred without 
delay, were the proprietors of the soil, the landed nobiUty and 
gentry of India. It was not considered that the zemindars, though 
they collected the rents, did not keep them ; but paid them all away 
with a small deduction to the government. It was not considered 
that if they governed the ryots, and in many respects exercised 
over them despotic power, they did not govern them as tenants of 
theirs, holding their lands either at will or by contract under 
them. The possession of the ryot was an hereditary possession ; 
from which it was unlawful for the zemindar to displace him ; 
for every farthing which the zemindar drew from the ryot, he was 
bound to account ; and it was only by fraud, if, out of all that he 
collected, he retained an ana more than the small proportion 
which, as pay for collection, he was permitted to receive." 

" There was an opportunity in India," continues the historian, 
" to which the history of the world presents not a parallel. Next 
after the sovereign, the immediate cultivators had, by far, the 
greatest portion of interest in the soil. For the rights (such as 
they were) of the zemindars, a complete compensation might have 
easily been made. The generous resolution was adopted, of 
sacrificing to the improvement of the country, the proprietary 
rights of the sovereign. The motives to improvement which property 
gives, and of which the power was so justly appreciated, might 
have been bestowed upon those upon whom they would have 
operated with a force incomparably greater than that with which 
they could operate upon any other class of men : they might have 
been bestowed upon those from whom alone, in every country, the 
principal improvements in agriculture must be derived, the 
immediate cultivators of the soil. And a measure worthy to be 
ranked among the noblest that ever were taken for the improvement 
of any country, might have helped to compensate the people of 
India for the miseries of that misgovernment which they had so 
long endured. But the legislators were English aristocrats ; and 
aristocratical prejudices prevailed." 

The measure proved a total failure, as to the main effects which 
its well-meaning promoters expected from it. Unaccustomed to 
estimate the mode in which the operation of any given institution 
is modified even by such variety of circumstances as exists within a 
single kingdom, they flattered themselves that they had created, 
throughout the Bengal provinces, EngUsh landlords, and it proved 



COTTIERS 327 

that they had only created Irish ones. The new landed aristocracy 
disappointed every expectation built upon them. They did nothing 
for the improvement of their estates, but everything for their own 
ruin. The same pains not being taken, as had been taken in Ireland, 
to enable landlords to defy the consequences of their improvidence, 
nearly the whole land of Bengal had to be sequestrated and sold, 
for debts or arrears of revenue, and in one generation most of the 
ancient zemindars had ceased to exist. Other famiUes, mostly the 
descendants of Calcutta money dealers, or of native officials who 
had enriched themselves under the British government, now occupy 
their place ; and Uve as useless drones on the soil which has been 
given up to them. Whatever the government has sacrificed of its 
pecuniary claims, for the creation of such a class, has at the best 
been wasted.^ 

In the parts of India into which the British rule has been more 
recently introduced, the blunder has been avoided of endowing a 
useless body of great landlords with gifts from the pubUc revenue. 
In most parts of the Madras and in part of the Bombay Presidency, 
the rent is paid directly to the government by the immediate 
cultivator. In the North-Western Provinces, the government 
makes its engagement with the village community collectively, 
determining the share to be paid by each individual, but holding 
them jointly responsible for each other's default. But in the greater 
part of India, the immediate cultivators have not obtained a per- 
petuity of tenure at a fixed rent. The government manages the 
land on the principle on which a good Irish landlord manages his 
estate : not putting it up to competition, not asking the cultivators 

^ [In the original text there next came the following passages : " But in 
this ill judged measure there was one redeeming point, to which may probably 
be ascribed all the progress which the Bengal provinces have since made in 
production and in amount of revenue. The ryots were reduced, indeed, to 
the rank of tenants of the zemindar ; but tenants with fixity of tenure. The 
rents were left to the zemindars to fix at their discretion ; but once fixed, were 
never more to be altered. This is now the law and practice of landed tenure, 
in the most flourishing part of the British Indian dominions. 

" In the parts of India into which the British rule has been more recently 
introduced, the blunder has been avoided of endowing a useless body of great 
landlords with gifts from the public revenue ; but along with the evil, the good 
also has been left undone. The government has done less for the ryots than 
it has required to be done for them by the landlords of its creation." 

These were omitted (as incorrect — see note of 1871, infra, p. 328) in the 3rd 
ed. (1852). In that edition was added the reference to Madras and Bombay, 
with the statement that " the rent on each class of land is fixed in perpetuity." 
This incorrept statement was struck out of the 4th ed. (1857), and the reference 
to the North- Western Provinces added.] 



328 BOOK II. CHAPTER IX. § 4 

what they will promise to pay, but determining for itself what they 
can afford to pay, and defining its demand accordingly. In many 
districts a portion of the cultivators are considered as tenants of the 
rest, the government making its demand from those only (often a 
numerous body) who are looked upon as the successors of the 
original settlers or conquerors of the village. Sometimes the rent 
is fixed only for one year, sometimes for three or five ; but the 
uniform tendency of present poHcy is towards long leases, extending, 
in the northern provinces of India, to a term of thirty years. This 
arrangement has not existed for a sufficient time to have shown by 
experience, how far the motives to improvement which the long 
lease creates in the minds of the cultivators, fall short of the influence 
of a perpetual settlement.* But the two plans, of annual settlements 
and of short leases, are irrevocably condemned. They can only be 
said to have succeeded, in comparison with the unhmited oppression 
which existed before. They are approved by nobody, and were 
never looked upon in any other fight than as temporary arrange- 
ments, to be abandoned when a more complete knowledge of the 
capabifities of the country should afford data for something more 
permanent.! 

* [1871] Since this was written, the resolution has been adopted by the 
Indian government of converting the long leases of the northern provinces into 
perpetual tenures at fixed rents. 

^ [See Appendix M. Indian Tenures,1 



CHAPTER X 

MEANS OP ABOLISHING COTTIER TENANCY 

§ 1. When the first edition of this work was written and 
publishedji the question, what is to be done with a cottier popula- 
tion, was to the English Government the most urgent of practical 
questions. The majority of a population of eight millions, having 
long grovelled in helpless inertness and abject poverty under the 
cottier system, reduced by its operation to mere food of the cheapest 
description, and to an incapacity of either doing or willing anything 
for the improvement of their lot, had at last, by the failure of that 
lowest quahty of food, been plunged into a state in which the 
alternative seemed to be either death, or to be permanently sup- 
ported by other people, or a radical change in the economical 
arrangements under which it had hitherto been their misfortune to 
live. Such an emergency had compelled attention to the subject 
from the legislature and from the nation, but it could hardly be 
said with much result ; for, the evil having originated in a system 
of land tenancy which withdrew from the people every motive to 
industry or thrift except the fear of starvation, the remedy provided 
by Parhament was to take away even that, by conferring on them a 
legal claim to eleemosynary support : while, towards correcting 
the cause of the mischief, nothing was done, beyond vain complaints, 
though at the price to the 'national treasury of ten miUions sterling 
for the delay. 

"It is needless," (I observed) " to expend any argument m 
proving that the very foundation of the economical fjvils of Ireland 
is the cottier system ; that while peasant rents fixed by competition 
are the practice of the country, to expect industry, useful activity, 
any restraint on population but death, or any the smallest diminution 
of poverty, is to look for figs on thistles and grapes on thorns. If 

^ [These words were added in the Srded. (1852), and the following sentences 
changed from the present to the past tense.] 



330 BOOK II. CHAPTER X. § 1 

our practical statesmen are not ripe for tlie recognition of this fact J 
or if while they acknowledge it in theory, they have not a sufficient 
feeHng of its reality, to be capable of founding upon it any course 
of conduct ; there is still another, and a purely physical consideration, 
from which they will find it impossible to escape. If the one crop 
on which the people have hitherto supported themselves continues 
to be precarious, either some new and great impulse must be given 
to agricultural skill and industry, or the soil of Ireland can no 
longer feed anything like its present population. The whole 
produce of the western half of the island, leaving nothing for rent, 
will not now keep permanently in existence the whole of its people : 
and they will necessarily remain an annual charge on the taxation 
of the empire, until they are reduced either by emigration or by 
starvation to a number corresponding with the low state of their 
industry, or unless the means are found of making that industry 
much more productive." 

1 Since these words were written, events unforeseen by any one 
have saved the English rulers of Ireland from the embarrassments 
which would have been the just penalty of their, indifference and 
want of foresight. Ireland, under cottier agriculture, could no 
longer supply food to its population : Parliament, by way of remedy, 
applied a stimulus to population, but none at all to production ; the 
help, however, which had not been provided for the people of 
Ireland by poHtical wisdom, came from an unexpected source. 
Self-supporting emigration — the Wakefield system, brought into 
effect on the voluntary principle and on a gigantic scale (the 
expenses of those who followed being paid from the earnings of 
those who went before) has, for the present, reduced the population 
down to the number for which the existing agricultural system can 
find employment and support. The census of 1851, compared with 
that of 1841, showed in round numbers a diminution of population 
of a million and a half. The subsequent census (of 1861) shows a 
further diminution of about half a million. The Irish having thus 
found the way to that flourishing continent which for generations 
will be capable of supporting in undiminished comfort the increase 
of the population of the whole world ; the peasantry of Ireland 
having learnt to fix their eyes on a terrestrial paradise beyond the 
ocean, as a sure refuge both from the oppression of the Saxon and 
from the tyranny of nature ; there can be little doubt that however 

^ [This and the next two paragraphs date from the 3rd ed. (1852), and take 
the place of the whole of the original § 2.] 



MEANS OF ABOLISHING COIilLK IMSlANCk *m 

much the employment for agricultural labour may hereafter be 
diminished by the general introduction throughout Ireland of 
English farming — or even if, Hke the county of Sutherland, all 
Ireland should be turned into a grazing farm — the superseded 
people would migrate to America with the same rapidity, and as 
free of cost to the nation, as the million of Irish who went thither 
during the three years previous to 1851. Those who think that the 
land of a country exists for the sake of a few thousand landowners, 
and that as long as rents are paid, society and government have 
fulfilled their function, may see in this consummation a happy end 
to Irish difficulties. 

But this is not a time, nor is the human mind now in a condition, 
in which such insolent pretensions can be maintained. The land 
of Ireland, the land of every country, belongs to the people of that 
country. The individuals called landowners have no right, in 
morality and justice, to anything but the rent, or compensation for 
its saleable value. With regard to the land itself, the paramount 
consideration is, by what mode of appropriation and of cultivation 
it can be made most useful to the collective body of its inhabitants. 
To the owners of the rent it may be very convenient that the bulk 
of the inhabitants, despairing of justice in the country where they 
and their ancestors have lived and suffered, should seek on another 
continent that property in land which is denied to them at home. 
But the legislature of the empire ought to regard with other eyes phe 
forced expatriation of millions of people. When the inhabitants of 
a country quit the country en masse because its Government will 
not make it a place fit for them to live in, the Government is judged 
and condemned. There is no necessity for depriving the landlords 
of one farthing of the pecuniary value of their legal rights ; but 
justice requires that the actual cultivators should be enabled to 
become in Ireland what they will become in America — proprietors 
of the soil which they cultivate. 

Good policy requires it no less. Those who, knowing neither 
Ireland nor any foreign country, take as their sole standard of 
social and economical excellence EngHsh practice, propose as the 
single remedy for Irish wretchedness, the transformation of the 
cottiers into hired labourers. But this is rather a scheme for the 
improvement of Irish agriculture, than of the condition of the Irish 
people. The status of a day-labourer has no charm for infusing 
forethought, frugality, or self-restraint, into a people devoid of 
j;}iem. If the Irish peasantry could be universally changed into 



332 BOOK II. CHAPTER X. § 1 

receivers of wages, the old habits and mental characteristics of the 
people remaining, we should merely see four or five millions of 
people living as day-labourers in the same wretched manner in which 
as cottiers they Uved before ; equally passive in the absence of every 
comfort, equally reckless in multiplication, and even, perhaps, 
equally listless at their work ; since they could not be dismissed 
in a body, and if they could, dismissal would now be simply remand- 
ing them to the poor-rate. Far other would be the effect of making 
them peasant proprietors. A people who in industry and providence 
have everything to learn — who are confessedly among the most 
backward of European populations in the industrial virtues — require 
for their regeneration the most powerful incitements by which 
those virtues can be stimulated : and there is no stimulus as yet 
comparable to property in land. A permanent interest in the soil 
to those who till it, is almost a guarantee for the most unwearied 
laboriousness : against over-population, though not infallible, it is 
the best preservative yet known, and where it failed, any other 
plan would probably fail much more egregiously ; the evil would be 
beyond the reach of merely economic remedies. 

The case of Ireland is similar in its requirements to that of India. 
In India, though great errors have from time to time been committed, 
no one ever proposed, under the name of agricultural improvement, 
to eject the ryots or peasant farmers from their possession ; the 
improvement that has been looked for, has been through making 
their tenure more secure to them, and the sole difference of opinion 
is between those who contend for perpetuity, and those who think 
that long leases will suffice. The same question exists as to Ireland : 
and it would be idle to deny that long leases, under such landlords 
as are sometimes to be found, do effect wonders, even in Ireland. 
But then they must be leases at a low rent. Long leases are in no 
way to be relied on for getting rid of cottierism. During the 
existence of cottier tenancy, leases have always been long ; twenty- 
one years and three lives concurrent, was a usual term. But the 
rent being fixed by competition, at a higher amount than could be 
paid, so that the tenant neither had, nor could by any exertion 
acquire, a beneficial interest in the land, the advantage of a lease was 
nearly nominal. In India, the government, where it has not 
imprudently made over its proprietary rights to the zemindars, i 
is able to prevent this evil, because, being itself the landlord, it can 
fix the rent according to its own judgment ; but under individual 
* [This clause was inserted in the 3rd ed. (1852).] 



MEANS OF ABOLISHING COTTIER TENANCY 333 

landlords, while rents are fixed by competition, and tlie competitors 
are a peasantry struggling for subsistence, nominal rents are in- 
evitable, unless the population is so tbin, tbat the competition 
itself is only nominal. The majority of landlords will grasp at 
immediate money and immediate power ; and so long as tbey 
find cottiers eager to offer them everything, it is useless to rely 
on tbem for tempering tbe vicious practice by a considerate 
self-denial. 

A perpetuity is a stronger stimulus to improvement tban a 
long lease : not only because tbe longest lease, before coming to 
an end, passes through all the varieties of short leases down to no 
lease at all ; but for more fundamental reasons. It is very shallow, 
even in pure economics, to take no account of the influence of 
imagination : there is a virtue in " for ever " beyond the longest 
term of years ; even if the term is long enough to include children, 
and all whom a person individually cares for, yet until he has 
reached that high degree of mental cultivation at which the public 
good (which also includes perpetuity) acquires a paramount ascen- 
dancy over his feeHngs and desires, he will not exert himself with 
the same ardour to increase the value of an estate, his interest in 
which diminishes in value every year. Besides, while perpetual 
tenure is the general rule of landed property, as it is in all the countries 
of Europe, a tenure for a hmited period, however long, is sure to be 
regarded as a something of inferior consideration and dignity, and 
inspires less of ardour to obtain it, and of attachment to it when 
obtained. But where a country is under cottier tenure, the question 
of perpetuity is quite secondary to the more important point, a 
limitation of the rent. Kent paid by a capitalist who farms for 
profit, and not for bread, may safely be abandoned to competition ; 
rent paid by labourers cannot, unless the labourers were in a state of 
civilization and improvement which labourers have nowhere yet 
reached, and cannot easily reach under such a tenure. Peasant 
rents ought never to be arbitrary, never at the discretion of the 
landlord : either by custom or law, it is imperatively necessary that 
they should be fixed ; and where no mutually advantageous custom, 
such as the metayer system of Tuscany, has established itself, 
reason and experience recommend that they should be fixed by 
authority : thus changing the rent into a quit-rent, and the farmer 
into a peasant proprietor. 

For carrying this change into effect on a sufficiently large scale 
to accomplish the complete abolition of cottier tenancy, the modf 



334 BOOK II. CHAPTER X. § 1 

■which most obviously suggests itself is the direct one of doing 
the thing outright by Act of Parliament ; making the whole land 
of Ireland the property of the tenants, subject to the rents now really 
paid (not the nominal rent), as a fixed rent charge. This, under the 
name of " fixity of tenure," was one of the demands of the Repeal 
Association during the most successful period of their agitation ; 
and was better expressed by Mr. Conner, its earliest, most enthusi- 
astic, and most indefatigable apostle,* by the words, " a valuation 
and a perpetuity." In such a measure there would not have been 
any injustice, provided the landlords were compensated for the 
present value of the chances of increase which they were prospectively 
required to forego. The rupture of existing social relations would 
hardly have been more violent than that effected by the ministers 
Stein and Hardenberg when, by a series of edicts, in the early part 
of the present century, they revolutionized the state of landed 
property in the Prussian monarchy, and left their names to posterity 
among the greatest benefactors of their country. To enUghtened 
foreigners writing on Ireland, Von Raumer and Gustave de 
Beaumont, a remedy of this sort seemed so exactly and obviously 
what the disease required, that they had some difficulty in 
comprehending how it was that the thing was not yet done. 

This, however, would have been, in the first place, a complete 
expropriation of the higher classes of Ireland : which, if there is any 
truth in the principles we have laid down, would be perfectly 
warrantable, but only if it were the sole means of effecting a great 
public good. In the second place, that there should be none but 
peasant proprietors, is in itself far from desirable. Large farms, 
cultivated by large capital, and owned by persons of the best educa- 
tion which the country can give, persons qualified by instruction 
to appreciate scientific discoveries, and able to bear the delay and 
risk of costly experiments, are an important part of a good 
agricultural system. Many such landlords there are even in Ireland ; 
and it would be a public misfortune to drive them from their posts. 
A large proportion also of the present holdings are probably still 
too small to try the proprietary system under the greatest advantages; 
nor are the tenants always the persons one would desire to select 
as the first occupants of peasant-properties. There are numbers 
of them on whom it would have a more beneficial effect to give 

* Author of numerous pamphlets, entitled True Political Economy of 
Ireland, Letter to the Earl of Devon, Two Letters on the Rackrent Oppression 
of Ireland, and others. My. Conner has been aii agitator on the snbjegti 
lince 183g, 



MEAKS OF ABOLISHING COtTIER TENANCY 336 

them the hope of acquiring a landed property by industry and 
frugality, than the property itself in immediate possession.^ 

There are, however, much milder measures, not open to similar 
objections, and which, if pushed to the utmost extent of which 
they are susceptible, would reahze in no inconsiderable degree 
the object sought. One of them would be, to enact that whoever 
reclaims waste land becomes the owner of it, at a fixed quit-rent 
equal to a moderate interest on its mere value as waste. It would 
of course be a necessary part of this measure, to make compulsory 
on landlords the surrender of waste lands (not of an ornamental 
character) whenever required for reclamation. Another expedient, 
and one in which individuals could co-operate, would be to buy 
as much as possible of the land offered for sale, and sell it again 
in small portions as peasant-properties. A Society for this purpose 

[Here was dropt out, from the 3rd ed. (1852) the followmg section of 
the origmal text : 

*' § 5. Some persons who desire to avoid the term Gxity of tenure, but who 
cannot be satisfied without some measure co-extensive with the whole country, 
have proposed the universal adoption of ' tenant-right.' Under this equivocal 
phrase, two things are confounded. What it commonly stands for in Irish 
discussion, is the Ulster practice, which is in fact, fixity of tenure. It supposes 
a customary, though not a legal, hmitation of the rent ; without which the 
tenant evidently could not acquire a beneficial and saleable interest. Its 
existence is highly salutary, and is one principal cause of the superiority of 
Ulster in efficiency of cultivation, and in the comfort of the people, notwith- 
standing a minuter sub-division of holdings than in the other provinces. But 
to convert this customary limitation of rent into a legal one, and to make it 
universal, would be to establish a fixity of tenure by law, the objections to which 
have already been stated. 

" The same appellation (tenant right) has of late years been applied, more 
particularly in England, to something altogether different, and falling as much 
short of the exigency, as the enforcement of the Ulster custom would exceed 
it. This English tenant right, with which a high agricultural authority has 
connected his name by endeavouring to obtain for it legislative sanction, 
amounts to no more than this, that on the expiration of a lease, the landlord 
should make compensation to the tenant for ' unexhausted improvements.' 
This is certainly very desirable, but provides only for the case of capitalist 
farmers, and of improvements made by outlay of money ; of the worth and 
cost of which, an experienced land agent or a jury of farmers could accurately 
judge. The improvements to be looked for from peasant cultivators are the 
result not of money but of their labour, applied at such various times and in 
such minute portions as to be incapable of judicial appreciation. For such 
labour, compensation could not be given on any principle but that of paying 
to the tenant the whole difference between the value of the property when he 
received it, and when he gave it up : which would as effectually annihilate 
the right of property of the landlord as if the rent had been fixed in perpetuity, 
while it would not offer the same inducements to the cultivator, who improves 
from affection and passion as much as from calculation, and to whom his own 
land is a widely different thing from the most liberal possible pecuniary com- 
pensation for it."] 



336 BOOK II. CHAPTER X. § 1 

was at one time projected (though the attempt to establish it 
proved unsuccessful) on the principles, so far as applicable, ot 
the Freehold Land Societies, which have been so successfully 
estabhshed in England, not primarily for agricultural, but for 
electoral purposes.^ 

This is a mode in which private capital may be employed in 
renovating the social and agricultural economy of Ireland, not 
only without sacrifice but with considerable profit to its owners. 
The remarkable success of the Waste Land Improvement Society, 
which proceeded on a plan far less advantageous to the tenant, 
is an instance of what an Irish peasantry can be stimulated to do, 

1 [Little more than this remained in the 3rd ed. (1852) — modified to its 
present shape in the 5th (1862) — of the argument in favour of measures of 
reclamation of waste land which occupied five pages in the original edition. 
It opened thus : " There is no need to extend them to all the population, or all 
the land. It is enough if there be land available, on which to locate so great 
a portion of the population, that the remaining area of the country shall not 
be required to maintain greater numbers than are compatible with large 
farming and hired labour. For this purpose there is an obvious resource in 
the waste lands ; which are happily so extensive, and a large proportion of 
them so improvable, as to afford a means by which, without making the present 
tenants proprietors, nearly the whole surplus population might be converted 
into peasant proprietors elsewhere." 

After this argument came the following account of the English experiments 
associated with the name of Eeargus O'Connor : " There are yet other means, 
by which not a little could be done in the dissemination of peasant proprietors 
over even the existing area of cultivation. There is at the present time an 
experiment in progress, in more than one part of England, for the creation of 
peasant proprietors. The project is of Chartist origin, and its first colony is 
now in full operation near Rickmansworth, in Hertfordshire. The plan is as 
follows ; — Funds were raised by subscription, and vested in a joint-stock 
company. With part of these funds an estate of several hundred acres was 
bought. This estate was divided into portions of two, three, and four acres, on 
each of which a house was erected by the Association. These holdings were 
let to select labourers, to v/hom also such sums were advanced as were thought 
to amount to a sufficient capital for cultivation by spade labour. An annual 
payment, affording to the Company an interest of five per jent. on their outlay, 
was laid on the several holdings as a fixed quit-rent, never in any circum- 
stances to be raised. The tenants are thus proprietors from the first, and their 
redemption of the quit-rent, by saving from the produce of their labour, is 
desired and calculated upon. 

" The originator of this experiment appears to have successfully repelled 
(before a tribunal by no means prepossessed in his favour, a Committee of the 
House of Commons) the imputations which were lavished upon his project, 
and upon his mode of executing it. Should its issue ultimately be unfavourable, 
the cause of failure will be in the details of management, not in the principle. 
These well-conceived arrangements afford a mode in which private capital may 
co-operate in renovating &c." In the first edition it was said that " at present 
there seems no reason to believe " the issue would be unfavorable ; and in 
the second the reference was inserted to the parliamentary enquiry. For the 
subsequent history of the National Land Company, see L. Jebb, Small Holdings, 
(1907), p. 121.] 



MEANS 0^ ABOLISttiNG COTTtER TENANCY 33? 

by a sufficient assurance that wliat they do will be for their own 
advantage. It is not even indispensable to adopt perpetuity as the 
rule ; long leases at moderate rents, like those of the Waste Land 
Society, would suffice, if a prospect were held out to the farmers of 
being allowed to purchase their farms with the capital which they 
might acquire, as the Society's tenants were so rapidly acquiring 
under the influence of its beneficent system.* When the lands 
were sold, the funds of the association would be hberated, and it 
might recommence operations in some other quarter. 

§ 2.1 Thus far I had written in 1856. Since that time the 

great crisis of Irish industry has made further progress, and it is 

necessary to consider how its present state affects the opinions, 

on prospects or on practical measures, expressed in the previous 

part of this chapter. 

* [1857] Though this society, during the years succeeding the famine, was 
forced to wind up its affairs, the memory of what it accompHshed ought to be 
preserved. The following is an extract in the Proceedings of Lord Devon's 
Commission (page 84) from the report made to the society in 1845, by their 
intelUgent manager, Colonel Robinson : — 

" Two hundred and forty-five tenants, many of whom were a few years since 
in a state bordering on pauperism, the occupiers of small holdings of from ten 
to twenty plantation acres each, have, by their own free labour, with the 
society's aid, improved their farms to the value of 4396Z. ; 605?. having been 
added during the last year, being at the rate of 111. 18s. per tenant for the whole 
term, and 21. 9s. for the past year ; the benefit of which improvements each 
tenant will enjoy during the unexpired term of a thirty- one years' lease. 

" These 245 tenants and their families have, by spade industry, reclaimed 
and brought into cultivation 1032 plantation acres of land, previously unpro- 
ductive mountain waste, upon which they grew, last year, crops valued by 
competent practical persons at 3896?., being in the proportion of 15Z. 18s. each 
tenant ; and their live stock, consisting of cattle, horses, sheep, and pigs, now 
actually upon the estates, is valued, according to the present prices of the 
neighbouring markets, at 4162Z., of which 1304Z. has been added since February 
1844, being at the rate of 161. 19s. for the whole period, and 51. 6s. for the last 
year ; during which time their stock has thus increased in value a sum equal to 
their present annual rent ; and by the statistical tables and returns referred to 
in previous reports, it is proved that the tenants, in general, improve their 
little farms, and increase their cultivation and crops, in nearly direct proportion 
to the number of available working persons of both sexes of which their 
families consist." 

There cannot be a stronger testimony to the superior amount of gross, and 
even of net produce, raised by small farming under any tolerable system of 
landed tenure ; and it is worthy of attention that the industry and zeal were 
greatest among the smaller holders ; Colonel Robinson noticing, as exceptions 
to the remarkable and rapid progress of improvement, some tenants who were 
*' occupants of larger farms than twenty acres, a class too often deficient in the 
enduring industry indispensable for the successful prosecution of mountain 
improvements." 

^ [A brief section, beginning thus, was added in the 5th ed. (1862). This 
was omitted, and the present § 2 added in the 6th ed. (1865).] 



^38 feOOk It. CHAPTER X. § 2 

The priixcipal change in the situation consists in the great diminu- 
tion, holding out a hope of the entire extinction, of cottier tenure. 
The enormous decrease in the number of small holdings, and increase 
in those of a medium size, attested by the statistical returns, suf- 
ficiently proves the general fact, and all testimonies show that the 
tendency still continues.* It is probable that the repeal of the 
corn laws, necessitating a change in the exports of Ireland from the 
products of tillage to those of pasturage, would of itself have sufficed 
to bring about this revolution in tenure. A grazing farm can only be 

* There is, however, a partial counter-current, of which I have not seen any 
public notice. " A class of men, not very numerous, but sufficiently so to do 
much mischief, have, through the Landed Estates Court, got into possession of 
land in Ireland, who, of all classes, are least likely to recognise the duties of a 
landlord's position. These are small traders in towns, who by dint of sheer 
parsimony, frequently combined with money-lending at usurious rates, have 
succeeded, in the course of a long life, in scraping together as much money as 
will enable them to buy fifty or a hundred acres of land. These people never 
think of turning farmers, but, proud of their position as landlords, proceed to 
turn it to the utmost account. An instance of this kind came under my notice 
lately. The tenants on the property were, at the time of the purchase, some 
twelve years ago, in a tolerably comfortable state. Within that period their 
rent has been raised three several times ; and it is now, as I am informed by 
the priest of the district, nearly double its amount at the commencement of the 
present proprietor's reign. The result is that the people, who were formerly in 
tolerable comfort, are now reduced to poverty : two of .them have left the 
property and squatted near an adjacent turf bog, where they exist trusting for 
support to occasional jobs. If this man is not shot, he will injure himself 
through the deterioration of his property, but meantime he has been getting 
eight or ten per cent on his purchase- money. This is by no means a rare case. 
The scandal which such occurrences cause, casts its reflection on transactions 
of a wholly different and perfectly legitimate kind, where the removal of the 
tenants is simply an act of mercy for all parties. 

" The anxiety of landlords to get rid of cottiers is also to some extent neu- 
tralized by the anxiety of middlemen to get them. About one-fourth of the 
whole land of Ireland is held under long leases ; the rent received, when the 
lease is of long standing, being generally greatly under the real value of the 
land. It rarely happens that the land thus held is cultivated by the owner of 
the lease : instead of this, he sublets it at a rackrent to small men, and lives 
on the excess of the rent which he receives over that which he pays. Some of 
these leases are always running out ; and as they draw towards their close, the 
middleman has no other interest in the land than, at any cost of permanent 
deterioration, to get the utmost out of it during the unexpired period of the 
term. For this purpose the small cottier tenants precisely answer his turn. 
Middlemen in this position are as anxious to obtain cottiers as tenants, as the 
landlords are to be rid of them ; and the result is a transfer of this sort of tenant 
from one class of estates to the other. The movement is of limited dimensions, 
but it does exist, and so far as it exists, neutralizes the general tendency. 
Perhaps it may be thought that this system will reproduce itself ; that the 
same motives which led to the existence of middlemen will perpetuate the 
class ; but there is no danger of this. Landowners are now perfectly alive to 
the ruinous consequences of this system, however convenient for a time ; and a 
clause against sub-letting is now becoming a matter of course in every lease." — 
{Private Communication from Professor Gairnes.) 



MEANS OF ABOLISHING COTTIER TENANCY 339 

managed by a capitalist farmer, or by the landlord. But a change 
involving so great a displacement of the population has been 
immensely facilitated and made more rapid by the vast emigration, 
as well as by that greatest boon ever conferred on Ireland by any 
Government, the Encumbered Estates Act ; the best provisions 
of which have since, through the Landed Estates Court, been 
permanently incorporated into the social system of the country. 
The greatest part of the soil of Ireland, there is reason to beheve, 
is now farmed either by the landlords, or by small capitalist farmers. 
That these farmers are improving in circumstances, and accumu- 
lating capital, there is considerable evidence, in particular the great 
increase of deposits in the banks of which they are the principal 
customers. So far as that class is concerned, the chief thing still 
wanted is security of tenure, or assurance of compensation for 
improvements. The means of supplying these wants are now 
engaging the attention of the most competent minds ; Judge 
Longfield's address, in the autumn of 1864, and the sensation 
created by it, are an era in the subject, and a point has now been 
reached when we may confidently expect that within a very few 
years something effectual will be done. 

But what, meanwhile, is the condition of the displaced cottiers, 
so far as they have not emigrated ; and of the whole class who 
subsist by agricultural labour, without the occupation of any land ? 
As yet, their state is one of great poverty, with but slight prospect of 
improvement. Money wages, indeed, have risen much above the 
wretched level of a generation ago : but the cost of subsistence 
has also risen so much above the old potato standard, that the 
real improvement is not equal to the nominal ; and according to the 
best information to which I have access, there is little appearance 
of an improved standard of living among the class. The population, 
in fact, reduced though it be, is still far beyond what the country 
can support as a mere grazing district of England. It may not, 
perhaps, be strictly true that, if the present number of inhabitants are 
to be maintained at home, it can only be either on the old vicious 
system of cottierism, or as small proprietors growing their own 
food. The lands which will remain under tillage would, no doubt, 
if sufficient security for outlay were given, admit of a more extensive 
employment of labourers by the small capitalist farmers ; and this, 
in the opinion of some competent judges, might enable the country 
to support the present number of its population in actual existence. 
But no one will pretend that this resource is sufficient to maintain 



340 BOOK II. CHAPTER X, § 2 

them in any condition in which it is fit that the great body of the 
peasantry of a country should exist. Accordingly the emigration, 
which for a time had fallen off, has, under the additional stimulus 
of bad seasons, revived in all its strength. It is calculated that 
within the year 1864 not less than 100,000 emigrants left the Irish 
shores. As far as regards the emigrants themselves and their 
posterity, or the general interests of the human race, it would be 
folly to regret this result. The children of the immigrant Irish 
receive the education of Americans, and enter, more rapidly and 
completely than would have been possible in the country of their 
descent, into the benefits of a higher state of civilization. In twenty 
or thirty years they are not mentally distinguishable from other 
Americans. The loss, and the disgrace, are England's : and it is 
the English people and government whom it chiefly concerns to 
ask themselves, how far it will be to their honour and advantage 
to retain the mere soil of Ireland, but to lose its inhabitants. With 
the present feelings of the Irish people, and the direction which their 
hope of improving their condition seems to be permanently taking, 
England, it is probable, has only the choice between the depopula- 
tion of Ireland, and the conversion of a part of the labouring 
population into peasant proprietors. The truly insular ignorance 
of her public men respecting a form of agricultural economy which 
predominates in nearly every other civilized country, makes it only 
too probable that she will choose the worse side of the alternative. 
Yet there are germs of a tendency to the formation of peasant 
proprietors on Irish soil, which require only the aid of a friendly 
legislator to foster them ; as is shown in the following extract 
from a private communication by my eminent and valued friend, 
Professor Cairnes : — 

** On the sale, some eight or ten years ago, of the Thomond, 
Portarhngton, and Kingston estates, in the Encumbered Estates 
Court, it was observed that a considerable number of occupying 
tenants purchased the fee of their farms. I have not been able 
to obtain any information as to what followed that proceeding — 
whether the purchasers continued to farm their small properties, 
or under the mania of landlordism tried to escape from their former 
mode of life. But there are other facts which have a bearing on this 
question. In those parts of the country where tenant-right prevails, 
the prices given for the goodwill of a farm are enormous. The 
following figures, taken from the schedule of an estate in the neigh- 
bourhood of Newry, now passing through the Landed Estates Courtj 



MEANS OF ABOLISHING COTTIER TENANCY 



341 



will give an idea, but a very inadequate one, of the prices which this 
mere custopiary right generally fetches. 

" Statement showing the prices at which the tenant-right of 
certain farms near Newry was sold : — 





Acres 


Lot 1 


23 


2 


24 


3 


13 


4 


14 


5 


10 


6 


5 


7 


8 


8 


11 


9 


2 



110 



Eent. 

£74 
77 
39 
34 
33 
13 
26 
33 



£334 



Purchase- money 

of tenant-right. 

.. £ 33 

240 

110 

85 

172 

75 

130 

130 

5 



£980 



" The prices here represent on the whole about three years' 
purchase of the rental : but this, as I have said, gives but an in- 
adequate idea of that which is frequently, indeed of that which 
is ordinarily, paid. The right, being purely customary, will vary 
in value with the confidence generally reposed in the good faith 
of the landlord. In the present instance, circumstances have 
come to Kght in the course of the proceedings connected with 
the sale of the estate, which give reason to beUeve that the confidence 
in this case was not high ; consequently, the rates above given 
may be taken as considerably under those which ordinarily prevail. 
Cases, as I am informed on the highest authority, have in other 
parts of the country come to light, also in the Landed Estates 
Court, in which the price given for the tenant-right was equal to 
that of the whole fee of the land. It is a remarkable fact that 
people should be found to give, say twenty or twenty-five years' 
purchase, for land which is still subject to a good round rent. Why, 
it will be asked, do they not purchase land out and out for the 
same, or a slightly larger, sum ? The answer to this question \ 
believe is to be found in the state of our land laws: The cost 
of transferring land in small portions is, relatively to the purchase 
money, very considerable, even in the Landed Estates Court ; 
while the goodwill of a farm may be transferred without any cost 
at all. The cheapest conveyance that could be drawn in that 
Court, where the utmost economy, consistent with the present 
mode of remunerating legal services, is strictly enforced, would, 
irrespective of stamp duties, cost 101. — a very sensible addition to 
the purchase of a small peasant estate : a conveyance to transfer 



342 BOOK II. CHAPTER X. § 2 

a thousand acres might not cost more, and would probably not 
cost much more. But, in truth, the mere cost of conveyance 
represents but the least part of the obstacles which exist to 
obtaining land in small portions. A far more serious impediment 
is the comphcated state of the ownership of land, which renders 
it frequently impracticable to subdivide a property into such 
portions as would bring the land within the reach of small bidders. 
The remedy for this state of things, however, lies in measures of a 
more radical sort than I fear it is at all probable that any House of 
Commons we are soon likely to see would even with patience con- 
sider. A registry of titles may succeed in reducing this complex 
condition of ownership to its simplest expression ; but where real 
complication exists, the difficulty is not to be got rid of by mere 
simphcity of form ; and a registry of titles — while the powers of dis- 
position at present enjoyed by landowners remain imdiminished, 
while every settler and testator has an almost unbounded licence 
to multiply interests in land, as pride, the passion for dictation, 
or mere whim may suggest — will, in my opinion, fail to reach the 
root of the evil. The effect of these circumstances is to place an 
immense premium upon large deaUngs in land — indeed in most 
cases practically to preclude all other than large dealings ; and 
while this is the state of the law, the experiment of peasant pro- 
prietorship, it is plain, cannot be fairly tried. The facts, however, 
which I have stated, show, I think, conclusively, that there is 
no obstacle in the disposition of the people to the introduction of 
this system." 

I have concluded a discussion, which has occupied a space 
almost disproportioned to the dimensions of this work ; and I 
here close the examination of those simpler forms of social economy 
in which the produce of the land either belongs undividedly to one 
class, or is shared only between two classes. We now proceed 
to the hypothesis of a threefold division of the produce, among 
labourers, landlords, and capitaHsts ; and in order to connect 
the coming discussions as closely as possible with those which have 
now for some time occupied us, I shall commence with the subject 
of Wages. 1 

^ [See Appendix N. Irish Agrarian Development] 



CHAPTER XI 



OF WAGES 



§ 1. Under the head of Wages are to be considered, first, 
the causes which determine or influence the wages of labour gene- 
rally, and secondly, the differences that exist between the wages 
of different employments. It is convenient to keep these two 
classes of considerations separate ; and in discussing the law of 
wages, to proceed in the first instance as if there were no other 
kind of labour than common unskilled labour of the average degree 
of hardness and disagreeableness. 

Wages, hke other things, may be regulated either by competition 
or by custom. In this country there are few kinds of labour of 
which the remuneration would not be lower than it is, if the employer 
took the full advantage of competition. Competition, however, 
must be regarded, in the present state of society, as the principal 
regulator of wages, and custom or individual character only as 
a modifying circumstance, and that in a comparatively sHght 
degree.^ 

Wages, then, depend mainly upon the demand and supply ofj'^, - 
labour ; or, as it is often expressed, on the proportion betweenii 
population and capital. By population is here meant the number' | 
only of the labouring class, or rather of those who work for hire ; 
and by capital only circulating capital, and not even the whole of 
that, but the part which is expended in the direct purchase of 
labour. To this, however, must be added all funds which, without 

^ [The present text of this paragraph dates from the 3rd ed. (1852). Tho 
original text ran, after the word " custom " : " but the last is not a common 
case. A custom on the subject, even if established, could not easily maintain 
itself unaltered in any other than a stationary state of society. An increase or a 
falling off in the demand for labour, an increase or diminution of the labouring 
population, could hardly fail to engender a competition which would break down 
any custom respecting wages, by giving either to one side or to the other a strong 
direct interest in infringing it. We may at all events speak of the wages of 
labour as determined, in ordinary circumstances, by competition."] 



U4: BOOK 11. CHAPTER m. § 2 

forming a part of capital, are paid in exchange for labour, such, as the 
wages of soldiers, domestic servants, and all other unproductive 
labourers. There is unfortunately no mode of expressing by one 
familiar term, the aggregate of what has been called the wages-fund 
of a country : and as the wages of productive labour form nearly 
the whole of that fund, it is usual to overlook the smaller and less 
important part, and to say that wages depend on population 
and capital. It will be convenient to employ this expression, 
remembering, however, to consider it as elliptical, and not as a 
literal statement of the entire truth. 

With these hmitations of the terms, wages not only depend 
upon the relative amount of capital and population, but cannot, 
under the rule of competition,^ be affected by anything else. Wages 
(meaning, of course, the general rate) cannot rise, but by an increase 
of the aggregate funds employed in hiring labourers, or a diminution 
in the number of the competitors for hire ; nor fall, except either 
by a diminution of the funds devoted to paying labour, or by an 
increase in the number of labourers to be paid.^ 

y/ § 2. There are, however, some facts in apparent contradiction 
/to this doctrine, which it is incumbent on us to consider and explain. 
si/ For instance, it is a common saying that wages are high when 
trade is good. The demand for labour in any particular employ- 
ment is more pressing, and higher wages are paid, when there is 
a brisk demand for the commodity produced ; and the contrary 
when there is what is called a stagnation : then workpeople are 
dismissed, and those who are retained must submit to a reduction of 
wages : though in these cases there is neither more nor less capital 
than before. This is true ; and is one of those complications in the 
concrete phenomena, which obscure and disguise the operation of 
general causes : but it is not really inconsistent with the principles 
laid down. Capital which the owner does not employ in purchasing 
labour, but keeps idle in his hands, is the same thing to the labourers, 
for the time being, as if it did not exist. All capital i^, from the 
variations of trade, occasionally in this state. A manufacturer, 
finding a slack demand for his commodity, forbears to employ 
labourers in increasing a stock which he finds it difficult to dispose 
of ; or if he -goes on until all his capital is locked up in unsold goods, 
then at least he must of necessity pause until he can get paid for 

• ^ [The qualification inserted in 3rd ed. (1852).] 

2 [See Appendix 0. The Wages Fund Z^octrine.] 



WAGES 345 

some of them. But no one expects either of these states to be 
permanent ; if he did, he would at the first opportunity remove his 
capital to some other occupation, in which it would still continue 
to employ labour. The capital remains unemployed for a time, 
during which the labour market is overstocked, and wages fall. 
Afterwards the demand revives, and perhaps becomes unusually 
brisk, enabUng the manufacturer to sell his commodity even faster 
than he can produce it : his whole capital is then brought into 
, complete efficiency, and if he is able, he borrows capital in addition, 
which would otherwise have gone into some other employment. 
At such times wages, in his particular occupation, rise. If we 
suppose, what in strictness is not absolutely impossible, that one 
of these fits of briskness or of stagnation should affect all occupations 
at the same time, wages altogether might undergo a rise or a fall. 
These, however, are but temporary fluctuations : the capital now 
lying idle will next year be in active employment, that which is this 
year unable to keep up with the demand will in its turn be locked 
up in crowded warehouses ; and wages in these several departments 
will ebb and flow accordingly : but nothing can permanently alter 
general wages, except an increase or a diminution of capital itself 
(always meaning by the term, the funds of all sorts devoted to the 
payment of labour) compared with the quantity of labour offering 
itself to be hired. 

Again, it is another common notion that high prices make higl^V 
wages ; because the producers and dealers, being better off, can 
afford to pay more to their labourers, j I have already said that a 
brisk demand, which causes temporary high prices, causes also 
temporary high wages. But high prices, in themselves, can only 
raise wages if the dealers, receiving more, are induced to save more, 
and make an addition to their capital, or at least to their purchases 
of labour. This is indeed likely enough to be the case ; and if the 
high prices came direct from heaven, or even from abroad, the 
labouring class might be benefited, not by the high prices them- 
selves, but by the increase of capital occasioned by them. The 
same effect, however, is often attributed to a high price which is 
the result of restrictive laws, or which is in some way or other to be 
paid by the remaining members of the community ; they having 
no greater means than before to pay it with. High prices of this 
sort, if they benefit one class of labourers, can only do so at the 
expense of others ; since if the dealers by receiving high prices 
are enabled to make greater savings, or otherwise increase their 



346 BOOK II. CHAPTER XI. § 2 

purchases of labour, all other people by paying those high prices have 
their means of saving, or of purchasing labour, reduced in an equal 
degree ; • and it is a matter of accident whether the one alteration 
or the other will have the greatest effect on the labour market. 
Wages will probably be temporarily higher in the employment in 
which prices have risen, and somewhat lower in other employments : 
in which case, while the first half of the phenomenon excites notice, 
the other is generally overlooked, or if observed, is not ascribed to 
the cause which really produced it. Nor will the partial rise of 
wages last long : for though the dealers in that one employment 
gain more, it does not follow that there is room to employ a greater 
amount of savings in their own business : their increasing capital 
will probably flow over into other employments, and there counter- 
balance the diminution previously made in the demand for labour 
by the diminished savings of other classes. 

Another opinion often maintained is, that wages (meaning of 
course money wages) vary with the price of food ; rising when it 
rises, and falling when it falls. This opinion is, I conceive, only 
partially true ; and in so far as true, in no way affects the dependence 
of wages on the proportion between capital and labour : since the 
price of food, when it affects wages at all, affects them through that 
law. Dear or cheap food, caused by variety of seasons, does not 
affect wages (unless they are artificially, adjusted to it by law or 
charity) : or rather, it has some tendency to affect them in the 
contrary way to that supposed ; since in times of scarcity people 
generally compete more violently for employment, and lower the 
labour market against themselves. But dearness or cheapness of 
food, when of a permanent character, and capable of being calculated 
on beforehand, may affect wages. In the first place, if the labourers 
have, as is often the case, no more than enough to keep them in 
working condition, and enable them barely to support the ordinary 
number of children, it follows that if food grows permanently dearer 
without a rise of wages, a greater number of the children will pre- 
maturely die ; and thus wages will be ultimately higher, but only 
because the number of people will be smaller, than if food had 
remained cheap. But, secondly, even though wages were high 
enough to admit of food's becoming more costly without depriving 
the labourers and their families of necessaries ; though they could 
bear, physically speaking, to be worse off, perhaps they would not 
consent to be so. They might have habits of comfort which were to 
them as necessaries, and sooner than forego which, they would put 



WAGES 347 

an additional restraint on their power of multiplication ; so that 
wages would rise, not by increase of deaths but by diminution of 
births. In these cases, then, wages do adapt themselves to the 
price of food, though after an interval of almost a generation. Mr. j 
Ricardo considers these two cases to comprehend all cases. He! 
assumes that there is everywhere a minimum rate of wages : either 
the lowest with which it is physically possible to keep up the popula- 
tion, or the lowest with which the people will choose to do so. To 
this minimum he assumes that the general rate of wages always 
tends ; that they can never be lower, beyond the length of time 
required for a diminished rate of increase to make itself felt and can 
never long continue higher. This assumption contains sufficient 
truth to render it admissible for the purposes of abstract science ; 
and the conclusion which Mr. Ricardo draws from it, namely, that 
wages in the long run rise and fall with the permanent price of food, 
is, Uke almost all his conclusions, true hypothetically, that is, grant- 
ing the suppositions from which he sets out. But in the appHcation 
to practice, it is necessary to consider that the minimum of which 
he speaks, especially when it is not a physical, but what may be 
termed a moral minimum, is itself liable to vary. If wages were 
previously so high that they could bear reduction, to which the 
obstacle was a high standard of comfort habitual among the labourers, 
a rise in the price of food, or any other disadvantageous change in 
their circumstances, may operate in two ways : it may correct itself 
by a rise of wages brought about through a gradual effect on the 
prudential check to population ; or it may permanently lower the 
standard of living of the class, in case their previous habits in respect 
of population prove stronger than their previous habits in respect 
of comfort. In that case the injury done to them will be permanent, 
and their deteriorated condition will become a new minimum, 
tending to perpetuate itself as the more ample minimum did before. 
It is to be feared that of the two modes in which the cause may 
operate, the last is the most frequent, or at all events sufficiently so 
to render all propositions ascribing a self-repairing quality to the 
calamities- which befall the labouring classes practically of no validity. 
There is considerable evidence that the circumstances of the agri- 
cultural labourers in England have more than once in our history 
sustained great permanent deterioration, from causes which operated 
by diminishing the demand for labour, and which, if population had 
exercised its power of self-adjustment in obedience to the previous 
standard of comfort, could only have had a temporary efiect : but 



348 BOOK 11. CHAPTER Xt § 2 

unhappily the poverty in which the class was plunged during a long 
series of years brought that previous standard into disuse ; and the 
next generation, growing up without having possessed those pristine 
comforts, multiplied in turn without any attempt to retrieve them.* 
The converse case occurs when, by improvements in agriculture, 
the repeal of corn laws, or other such causes, the necessaries of the 
labourers are cheapened, and they are enabled, with the same 
wages, to command greater comforts than before. Wages will not 
fall immediately ; it is even possible that they may rise ; but they 
will fall at last, so as to leave the labourers no better ofi than before, 
unless during this interval of prosperity the standard of comfort, 
regarded as indispensable by the class, is permanently raised. Un- 
fortunately this salutary effect is by no means to be counted upon : 
it is a much more difficult thing to raise, than to lower, the scale of 
living which the labourer will consider as more indispensable than 
marrying and having a family. If they content themselves with 
enjoying the greater comfort while it lasts, but do not learn to require 
it, they will people down to their old scale of living. If from poverty 
their children had previously been insufficiently fed or improperly 
nursed, a greater number will now be reared, and the competition of 
these, when they grow up, will depress wages, probably in full pro- 
portion to the greater cheapness of food. If the effect is not pro- 
duced in this mode, it will be produced by earlier and more numerous 
marriages, or by an increased number of births to a marriage. 
According to all experience, a great increase invariably takes place 
in the number of marriages, in seasons of cheap food and full employ- 
ment. I cannot, therefore, agree in the importance so often attached 
to the repeal of the corn laws, considered merely as a labourers' 
question, or to any of the schemes, of which some one or other is at 
all times in vogue, for making the labourers a very little better off. 
Things which only affect them a very little make no permanent 
impression upon their habits and requirements, and they soon 
slide back into their former state. To produce permanent advantage , 
the temporary cause operating upon them must be sufficient to 
make a great change in their condition — a change such *s will be 
felt for many years, notwithstanding any stimulus which it may 

* See the historical sketch of the condition of the English peasantry, pre- 
pared from the best authorities, by Mr. William Thornton, in his work entitled 
Over-Population and its Bemedy : a work honourably distinguished from most 
others which have been published in the present generation, by its rational 
treatment of questions affecting the economical condition of the labouring 
classes. 



WAGES 349 

give during one generation to the increase of people. When, indeed, 
the improvement is of this signal character, and a generation grows 
up which has always been used to an improved scale of comfort, the 
habits of this new generation in respect to population become 
formed upon a higher minimum, and the improvement in their 
condition becomes permanent. Of cases in point, the most remark- 
able is France after the Eevolution. The majority of the population 
being suddenly raised from misery, to independence and compara- 
tive comfort ; the immediate efiect was that population, notwith- 
standing the destructive wars of the period, started forward with 
unexampled rapidity, partly because improved circumstances 
enabled many children to be reared who would otherwise have 
died, and partly from increase of births. The succeeding generation, 
however, grew up with habits considerably altered ; and though the 
country was never before in so prosperous a state, the annual number 
of births is now nearly stationary,* and the increase of population 
extremely slow.*)* 

§ 3. Wages depend, then, on the proportion between the number 
of the labouring population, and the capital or other funds devoted 
to the purchase of labour ; we will say, for shortness, the capital. 
If wages are higher at one time or place than at another, if the sub- 
sistence and comfort of the class of hired labourers are more ample, 
it is for no other reason than because capital bears a greater propor- 
tion to population. It is not the absolute amount of accumulation 

* Supra, pp. 293-5. 

f A similar, though not an equal, improvement in the standard of living 
took place among the labourers of England during the remarkable fifty years 
from 1715 to 1765, which were distinguished by such an extraordinary suc- 
cession of fine harvests (the years of decided deficiency not exceeding five in all 
that period) that the average price of wheat during those years was much 
lower than during the previous half century. Mr. Malthus computes that on 
the average of sixty years preceding 1720, the labourer could purchase with a 
day's earnings only two-thirds of a peck of wheat, while from 1720 to 1750 he 
could purchase a whole peck. The average price of wheat, according to the 
Eton tables, for fifty years ending with 1715, was 4l5. l^d. per quarter, and 
for the last twenty-three of these, 455. 8d., while for the fifty years following, it 
was no more than 34s. 1 Id. So considerable an improvement in the condition of 
the labouring class, though arising from the accidents of seascms, yet continuing 
for more than a generation, had time to work a change in the habitual require- 
ments of the labouring class ; and this period is always noted as the date of " a 
marked improvement of the quality of the food consumed, and a decided 
elevation in the standard of their comforts and conveniences." — (Malthus, 
Principles of Political Economy, p. 225.) For the character of the period, see 
Mr. Tooke's excellent History of Prices, vol. i. pp. 38 to 61, and for the prices 
of com, the Appendix to that work. 



360 1500K 11. CHAPTER XI. § 3 

or of production, that is of importance to the labouring class J 
it is not the amount even of the funds destined for distribution among 
the labourers : it is the proportion between those funds and the 
numbers among whom they are shared. The condition of the class 
I can be bettered in no other way than by altering that proportion to 
I their advantage : and every scheme for their benefit, which does 
not proceed on this as its foundation, is, for all permanent purposes, 
a delusion. 

In countries Hke North America and the AustraHan colonies, 
where the knowledge and arts of civiHzed life, and a high effective 
desire of accumulation, co-exist with a boundless extent of unoccupied 
land, the growth of capital easily keeps pace with the utmost 
possible increase of population, and is chiefly retarded by the im- 
practicability of obtaining labourers enough. All, therefore, who 
can possibly be born can find employment without overstocking 
the market : every labouring family enjoys in abundance the 
necessaries, many of the comforts, and some of the luxuries of life ; 
and, unless in case of individual misconduct, or actual inabihty to 
work, poverty does not, and dependence need not, exist. A similar 
advantage, though in a less degree, is occasionally enjoyed by some 
special class of labourers in old countries, from an extraordinarily 
rapid growth, not of capital generally, but of the capital employed 
in a particular occupation. So gigantic has been the progress of 
the cotton manufacture since the inventions of Watt and Arkwright, 
that the capital engaged in it has probably quadrupled in the time 
which population requires for doubhng. While, therefore, it ha3 
attracted from other employments nearly all the hands which geo- 
graphical circumstances and the habits or inclinations of the people 
rendered available ; and while the demand it created for infant 
labour has enhsted the immediate pecuniary interest of the opera- 
tives in favour of promoting, instead of restraining, the increase 
of population ; nevertheless wages in the great seats of the manu- 
facture are generally so high, that the collective earnings of a family 
amount, on an average of years, to a very satisfactory sum ; and 
there is, as yet, no sign of permanent decrease, while the effect has 
also been felt in raising the general standard of agricultural wages 
in the counties adjoining. 

But those circumstances of a country, or of an occupation, in 
which population can with impunity increase at its utmost rate, are 
rare, and transitory. Very few are the countries presenting the 
needful imion of conditions. Either the industrial arts are backward 



WAGES 351 

and stationary, and capital therefore increases slowly ; or, the 
effective desire of accumulation being low, the increase soon reaches 
its limit ; or, even though both these elements are at their highest 
known degree, the increase of capital is checked, because there is not 
fresh land to be resorted to, of as good quaUty as that already occu- 
pied. Though capital should for a time double itself simultaneously 
with population, if all this capital and population are to find employ- 
ment on the same land, they cannot without an unexampled succes- 
sion of agricultural inventions continue doubKng the produce ; 
therefore, if wages do not fall, profits must ; and when profits fall, 
increase of capital is slackened. Besides, even if wages did not 
fall, the price of food (as will be shown more fully hereafter) would 
in these circumstances necessarily rise ; which is equivalent to a fall 
of wages. 

Except, therefore, in the very pecuhar cases which I have just 
noticed, of which the only one of any practical importance is that 
of a new colony, or a country in circumstances equivalent to it ; 
[it js imp ossibl e that p opulation should increase at its utmost rate 
without^ wering wages. Nor will tEe falTbe stoppeH^ aFany point, 
short of that which either by its physical or its moral operation, 
checks the increase of population. In no old country, therefore, 
does population increase at anything like its utmost rate ; in most 
at a very moderate rate : in some countries, not at all. These facts 
are only to be accounted for in two ways. Either the whole number 
of births which nature admits of, and which happen in some circum- 
stances, do not take place ; or if they do, a large proportion of those 
who are born, die. The retardation of increase results either from 
mortahty or prudence ; from Mr. Malthus's positive, or from his 
preventive check : and one or the other of these must and does 
exist, and very powerfully too, in all old societies. Wherever 
population is not kept down by the prudence either of individuals or 
of the state, it is kept down by starvation or disease. 

Mr. Malthus has taken great pains to ascertain, for almost every 
country in the world, which of these checks it is that operates ; 
and the evidence which he collected on the subject, in his Essay on 
Population, may even now be read with advantage. Throughout 
Asia, and formerly in most European countries in which the labour- 
ing classes were not in personal bondage, there is, or was, no restrainer 
of population but death. The mortahty was not always the result 
of poverty : much of it proceeded from unskilful and careless managd- 
ment of children, from uncleanly and otherwise unhealthy habits 



352 BOOK II. CHAPTER XL § 3 

of life among the adult population, and from the almost periodical 
occurrence of destructive epidemics. Throughout Europe these 
causes of shortened life have much diminished, but they have not 
ceased to exist. Until a period not very remote,^ hardly any of 
our large towns kept up its population, independently of the stream 
always flowing into them from the rural districts : this was still 
true of Liverpool until very recently ; and even in London the 
mortahty is larger, and the average duration of life shorter, than in 
rural districts where there is much greater poverty. In Ireland, 
epidemic fevers, and deaths from the exhaustion of the constitution 
by insufficient nutriment, have always accompanied even the most 
moderate deficiency of the potato crop. Nevertheless, it cannot 
now be said that in any part of Europe, population is principally 
kept down by disease, still less by starvation, either in a direct or 
in an indirect form. The agency by which it is limited is chiefly 
preventive, not (in the language of Mr. Malthus) positive. But the 
preventive remedy seldom, I beheve, consists in the unaided opera- 
tion of prudential motives on a class wholly or mainly composed of 
labourers for hire^ and looking forward to no other lot. In England, 
for example, I much doubt if the generality of agricultural labourers 
practise any prudential restraint whatever. They generally marry 
as early, and have as many children to a marriage, as they would 
or could do if they were settlers in the United States. During the 
generation which preceded the enactment of the present Poor Law, 
they received the most direct encouragement to this sort of 
improvidence : being not only assured of support, on easy terms, 
whenever out of employment, but, even when in employment, very 
commonly receiving from the parish a weekly allowance proportioned 
to their number of children ; and the married with large famiHes 
being always, from a short-sighted economy, employed in preference 
to the unmarried ; which last premium on population still exists. 
Under such prompting, the rural labourers acquired habits of reck- 
lessness, which are so congenial to the uncultivated mind that, in 
whatever manner produced, they in general long survive their 
immediate causes. There are so many new elements at work in 
society, even in those deeper strata which are inaccessible to the 
mere movements on the surface, that it is hazardous to affirm any- 
thing positive on the mental state or practical impulses of classes 
and bodies of men, when the same assertion may be true to-day, and 
may require great modification in a few years' time. It does, how- 
* [The original text of 1848 is practically unchanged in this paragraph.] 



WAGES 353 

ever, seem, that if the rate of increase of population depended solely 
on the agricultural labourers, it would, as far as dependent on births, 
and unless repressed by deaths, be as rapid in the southern counties 
of England as in America. The restraining principle lies in the very 
great proportion of the population composed of the middle classes 
and the skilled artizans, who in this country almost equal in number 
the common labourers, and on whom prudential motives do, in a 
considerable degree, operate. 

§ 4. Where a labouring class who have no property but their 
daily wages, and no hope of acquiring it, refrain from over-rapid 
multipKcation, the cause, I believe, has always hitherto been, either 
actual legal restraint, or a custom of some sort which, without 
intention on their part, insensibly moulds their conduct, or ajBfords 
immediate inducements not to marry. It is not generally known in 
how many countries of Europe direct legal obstacles are opposed 
to improvident marriages. The communications made to the 
original Poor Law Commission by our foreign ministers and consuls 
in different parts of Europe, contain a considerable amount of 
information on this subject. Mr. Senior, in his preface to those com- 
munications,* says that in the countries which recognise a legal right 
to relief, " marriage on the part of persons in the actual receipt of 
rehef appears to be everywhere prohibited, and the marriage of those 
who are not likely to possess the means of independent support is 
allowed by very few. Thus we are told that in Norway no one can 
marry without ' showing to the satisfaction of the clergyman, that 
he is permanently settled in such a manner as to offer a fair prospect 
that he can maintain a family.' 

" In Mecklenburg, that * marriages are delayed by conscription 
in the twenty-second year, and military service for six years ; besides, 
the parties must have a dwelHng, without which a clergyman is 
not permitted to marry them. The men marry at from twenty-five 
to thirty, the women not much earlier, as both must first gain by 
service enough to establish themselves.' 

" In Saxony, that ' a man may not marry before lie is twenty- 
one years old, if liable to serve in the army. In Dresden, 
professionists (by which word artizans are probably meant) may not 
marry until they become masters in their trade.' 

" In Wurtemburg, that * no man is allowed to marry till his 

* Forming an Appendix (F) to the General Report of the Commissioners, 
and also published by authority as a separate volume. 



354 BOOK II. CHAPTER XI. § 4 

twenty-fifth year, on account of his military (duties, unless per- 
mission be especially obtained or purchased : at that age he must 
also obtain permission, which is granted on proving that he and 
his wife would have together sufficient to maintain a family or to 
establish themselves ; in large towns, say from 800 to 1000 florins 
(from Q61. 13s. 4:d. to SU. 3s. U.) ; in smaller, from 400 to 500 florins ; 
in viUages, 200 florins (16L 13s. 4td.) ' " * 

The minister at Munich says, " the great cause why the number 
of the poor is kept so low in this country arises from the prevention 
by law of marriages in cases in which it cannot be proved that the 
parties have reasonable means of subsistence ; and this regulation 
is in all places and at all times strictly adhered to. The effect of a 
constant and firm observance of this rule has, it is true, a consider- 
able influence in keeping down the population of Bavaria, which is 
at present low for the extent of country, but it^ has a most salutary 
effect in averting extreme poverty and consequent misery." f 

At Lubeck, " marriages among the poor are delayed by the 
necessity a mian is under, first, of previously proving that he is in 
regular employ, work, or profession, that will enable him to maintain 
a wife : and secondly, of becoming a burgher, and equipping himself 
in the uniform of the burgher guard, which together may cost him 
nearly 4Z." J At Frankfort, " the government prescribes no age 
for marrying, but the permission to marry is only granted on proving 
a livehhood." § 

The allusion, in some of these statements, to military duties, 
points out an indirect obstacle to marriage, interposed by the laws 
of some countries in which there is no direct legal restraint. In 
Prussia, for instance, the institutions which compel every able-bodied 
man to serve for several years in the army, at the time of life at 
which imprudent marriages are most likely to take place, are 
probably a fuU equivalent, in effect on population, for the legal 
restrictions of the smaller German states. 

1 " So strongly," says Mr. Kay, " do the people of Switzerland 
understand from experience the expediency of their sons and 
daughters postponing the time of their marriages, that the councils 
of state of four or five of the most democratic of the cantons, elected, 
be it remembered, by universal suffrage, have passed laws by which 
all young persons who marry before they have proved to the 

* Preface, p. xxxix. 

f Preface, p. xxxiii., or p. 554 of the Appendix itself, 
X Appendix, p. 419. § Ibid. p. 567. 

* [This paragraph was ?idded in the 3rd ed. (1852).] 



WAGES 355 

magistrate of their district that they are able to support a family, are 
rendered Uable to a heavy fine. In Lucerne, Argovie, Unterwalden, 
and, I believe, St. Gall, Schweitz, and Uri, laws of this character 
have been in force for many years." * 

§ 5. Where there is no general law restrictive of marriage, 
there are often customs equivalent to it. When the guilds or trade 
corporations of the Middle Ages were in vigour, their bye-laws or 
regulations were conceived with a very vigilant eye to the advantage 
which the trade derived from limiting competition : and they made 
it very efiectually the interest of artizans not to marry until after 
passing through the two stages of apprentice and journeyman, and 
attaining the rank of master.f In Norway, where the labour is 

* Kay, op. cit. i. 68. 

f " In general," says Sismondi, " tlie number of masters in each corporation 
was fixed, and no one but a master could keep a shop, or buy and sell on his own 
account. Each master could only train a certain number of apprentices, whom 
he instructed in his trade ; in some corporations he was only allowed one. 
Each master could also employ only a limited number of workmen, who were 
called companions, or journeymen ; and in the trades in which he could only 
take one apprentice, he was only allowed to have one, or at most two, journey- 
men. No one was allowed to buy, sell, or work at a trade, unless he was either 
an apprentice, a journeyman, or a master ; no one could become a journeyman 
without having served a given number of years as an apprentice, nor a master, 
unless he had served the same number of years as a journeyman, and unless he 
had also executed what was called his chef d' oeuvre {master 'piece), a piece of work 
appointed in his trade, and which was to be judged of by the corporation. It is 
seen that this organization threw entirely into the hands of the masters the 
recruiting of the trade. They alone could take apprentices ; but they were 
not compelled to take any ; accordingly they required to be paid, often at a 
very high rate, for the favour ; and a young man could not enter into a trade if 
he had not, at starting, the sum required to be paid for his apprenticeship, and 
the means necessary for his support during that apprenticeship ; since for four, 
five, or seven years, all his work belonged to his master. His dependence on the 
master during that time was complete ; for the master's will, or even caprice, 
could close the door of a lucrative profession upon him. After the apprentice 
became a journeyman he had a little more freedom ; he could engage with any 
master he chose, or pass from one to another ; and as the condition of a journey- 
man was only accessible through apprenticeship, he now began to profit by the 
monopoly from which he had previously suffered, and was almost ure of getting 
well paid for a work which no one else was allowed to perform. He depended, 
however, on the corporation for becoming a master, and did not, therefore, 
regard himself as being yet assured of his lot, or as having a permanent position. 
In general he did not marry until he had passed as a master. 

" It is certain both in fact and in theory that the existence of trade corpora- 
tions hindered, and could not but hinder, the birth of a superabundant popula- 
tion. By the statutes of almost all the guilds, a man could not pass as a master 
before the age of twenty- five : but if he had no capital of his own, if he had not 
made sufficient savings, he continued to work as a journeyman much longer ; 
some, perhaps the majority of artisans, remained journeymen all their lives. 
There was, however, scarcely an instance of their marrying before they were 



356 BOOK 11. CHAPTER XI. § 6 

chiefly agricultural, it is [1848] forbidden by law to engage a farm- 
servant for less than a year ; which was the general English practice 
until the poor-laws destroyed it, by enabling the farmer to cast his 
labourers on parish pay whenever he did not immediately require 
their labour. In consequence of this custom, and of its enforce- 
ment by law, the whole of the rather limited class of agricultural 
labourers in Norway have an engagement for a year at least, which, 
if the parties are content with one another, naturally becomes a 
permanent engagement : hence it is known in every neighbourhood 
whether there is, or is likely to be, a vacancy, and unless there is, 
a young man does not marry, knowing that he could not obtain 
employment. The custom still [1848] exists in Cumberland and 
Westmoreland, except that the term is half a year instead of a 
year ; and seems to be still attended with the same consequences. 
The farm-servants " are lodged and boarded in their masters' houses, 
which they seldom leave until, through the death of some relation 
or neighbour, they succeed to the ownership or lease of a cottage 
farm. What is called surplus labour does not here exist." * I have 
mentioned in another chapter the check to population in England 
during the last century, from the difficulty of obtaining a separate 
dwelHng place.f Other customs restrictive of population might be 
specified : in some parts of Italy it is the practice, according to 
Sismondi, among the poor, as it is well known to be in the higher 
ranks, that all but one of the sons remain unmarried. But such 
family arrangements are not hkely to exist among day-labourers. 
They are the resource of small proprietors and metayers, for 
preventing too minute a subdivision of the land. 

In England generally there is now scarcely a rehc of these indirect 
checks to population ; except that in parishes owned by one or a 
very small number of landowners, the increase of resident labourers 
is stiU occasionally obstructed, by preventing cottages from being 
built, or by ' pulling down those which exist ; thus restraining the 
population liable to become locally chargeable, without any material 
effect on population generally, the work required in those parishes 
being performed by labourers settled elsewhere. The surrounding 
districts always feel themselves much aggrieved by this practice, 
against which they cannot defend themselves by similar means, 

received as masters : had they been so imprudent as to desire it, no father would 
have given his daughter to a man without a position." — Nouveaux Principes, 
book iv. ch. 10. See also Adam Smith, book i. ch. 10, part 2. 

* See Thornton on Over-Population, page 18, and the authorities there cited. 

t Supra, p. 201. 



since a single acre of land owned by any one who does not enter 
into tlie combination, enables him to defeat the attempt, very 
profitably to himself, by covering that acre with cottages. To meet 
these complaints an Act has within the last few years been passed by 
Parliament, by which the poor-rate is made a charge not on the 
parish, but on the whole miion.^ This enactment, in, other respects 
very beneficial, removes the small remnant of what was once a check 
to population : the value of which, however, from the narrow Hmits 
of its operation, had become very trifling. 

§ 6. In the case, therefore, of the common agricultural labourer, 
the checks to population may almost be considered as non-existent. 
If the growth of the towns, and of the capital there employed, by 
which the factory operatives are maintained at their present average 
rate of wages notwithstanding their rapid increase, did not also 
absorb a great part of the annual addition to the rural population, 
there seems no reason in the present habits of the people why they 
should not fall into as miserable a condition as the Irish previous to 
1846 ; and if the market for our manufactures should, I do not say 
fall ofi, but even cease to expand at the rapid rate of the last fifty 
years, there is no certainty that this fate may not be reserved for us.^ 
Without carrying our anticipations forward to such a calamity, 
which the great and growing intelHgence of the factory population 
would, it may be hoped, avert, by an adaptation of their habits 
to their circumstances ; the existing condition of the labourers of 
some of the most exclusively agricultural counties, Wiltshire, Somer- 
setshire, Dorsetshire, Bedfordshire, Buckinghamshire, is sufficiently 
painful to contemplate. The labourers of these counties, with large 
famihes, and eight or perhaps nine shilHngs ^ for their weekly wages 
when in full employment, have for some time been one of the stock 
objects of popular compassion : it is time that they had the benefit 
also of some appHcation of common sense. 

Unhappily, sentimentahty rather than common sense usually 

presides over the discussion of these subjects ; and while there is a 

growing sensitiveness to the hardships of the poor, and a ready 

^ [The proposal was mentioned in the 1st ed. (1848) ; the Act was referred 
to in the 7th ed. (1871). For the Union ChargeabiUty Act of 1865 and previous 
and subsequent legislation, see Majority Beport of the Poor Law Commission 
(1909), Part iv. ch. 4.] 

2 [The words here following in the original text : " Especially considering 
how much the Irish themselves contribute to it, by migrating to this country 
and underbidding its native inhabitants," were omitted from the 5th ed. (1862).] 

3 [So ed. 5 (1862). In 1st ed. (1848) " seven or perhaps eight."] 



disposition to admit claims in them upon the good offices of other 
people, there is an all but universal unwillingness to face the real 
difficulty of their position, or advert at all to the conditions which 
nature has made indispensable to the improvement of their physical 
lot. Discussions on the condition of the labourers, lamentations 
over its wretch*edness, denunciations of all who are supposed to be 
indifferent to it, projects of one kind or another for improving it, 
were in no country and in no time of the world so rife as in the present 
generation ; but there is a tacit agreement to ignore totally the law 
of wages, or to dismiss it in a parenthesis, with such terms as " hard- 
hearted Malthusianism," as if it were not a thousand times more hard- 
hearted to tell human beings that they may, than that they may not, 
call into existence swarms of creatures who are sure to be miserable, 
and most Hkely to be depraved ; and forgetting that the conduct, 
which it is reckoned so cruel to disapprove, is a degrading slavery 
to a brute instinct in one of the persons concerned, and most 
commonly, in the other, helpless submission to a revolting abuse of 
power.^ 

So long as mankind remained in a semi-barbarous state, with the 
indolence and the few wants of a savage, it probably was not desir- 
able that population should be restrained ; the pressure of physical 
want may have been a necessary stimulus, in that state of the human 
mind, to the exertion of labour and ingenuity required for accom- 
pUshing that greatest of all past changes in human modes of 
existence, by which industrial life attained predominance over the 
hunting, the pastoral, and the mihtary or predatory state. Want, 
in that age of the world, had its uses, as even slavery had ; and 
there may be corners of the earth where those uses are not yet 
superseded, though they might easily be so were a helping hand 
held out by more civihzed communities. But in Europe the time, 
if it ever existed, is long past, when a hfe of privation had the 
smallest tendency to make men either better workmen or more 
civihzed beings. It is, on the contrary, evident, that if the agricul- 
tural labourers, were better off, they would both work more efficiently, 
and be better citizens. I ask, then, is it true, or not, that if their 
numbers were fewer they would obtain higher wages ? This is the 
question, and no other : and it is idle to divert attention from it, by 

^ [From the 3rd ed. (1852) was here omitted a paragraph of the original text 
criticising " the conduct, during ten important years, of a large portion of the 
Tory party " with regard to "an enactment " (the Poor Law Reform of 1834) 
" most salutary in principle, in which their own party had concurred, but of 
which their rivals were almost accidentally the nominal authors."] 



attacking any incidental position of Maltlius or some other writer, 
and pretending that to refute that, is to disprove the principle of 
population. Some, for instance, have achieved an easy victory over 
a passing remark of Mr. Malthus, hazarded chiefly by way of 
illustration, that the increase of food may perhaps be assumed to 
take place in an arithmetical ratio, while population increases in a 
geometrical : when every candid reader knows that Mr. Malthus laid 
no stress on this unlucky attempt to give numerical precision to 
things which do not admit of it, and every person capable of 
reasoning must see that it is wholly superfluous to his argument. 
Others have attached immense importance to a correction which 
more recent poKtical economists have made in the mere language 
of the earKer followers of Mr. Malthus. Several writers had said 
that it is the tendency of population to increase faster than the 
means of subsistence. The assertion was true in the sense in which 
they meant it, namely, that population would in most circum- 
stances increase faster than the means of subsistence, if it were 
not checked either by mortaUty or by prudence. But inasmuch 
as these checks act with unequal force at different times and 
places, it was possible to interpret the language of these writers as 
if they had meant that population is usually gaining ground upon 
subsistence, and the poverty of the people becoming greater. Under 
this interpretation of their meaning, it was urged that the reverse 
is the truth : that as civilization advances, the prudential check 
tends to become stronger, and population to slacken its rate 
of increase, relatively to subsistence ; and that it is an error to 
maintain that population, in any improving community, tends to 
increase faster than, or even so fast as, subsistence. The word 
tendency is here used in a totally different sense from that of the 
writers who afiirmed the proposition : but waiving the verbal ques- 
tion, is it not allowed on both sides, that in old countries, population 
presses too closely upon the means of subsistence ? And though 
its pressure diminishes, the more the ideas and habits of the poorest 
class of labourers can be improved, to which it is to be hoped that 
there is always some tendency in a progressive country, yet since 
that tendency has hitherto been, and still is, extremely faint, and 
(to descend to particulars) has not yet extended to giving to the 
Wiltshire labourers higher wages than eight shilHngs a week, the only 
thing which it is necessary to consider is, whether that is a sufficient 
and suitable provision for a labourer ? for if not, population does, 
as an existing fact, bear too great a proportion to the wages-fund ; 



360 BOOK II. CHAPTER XL § 6 

and whether it pressed still harder or not quite so hard at some 
former period, is practically of no moment, except that, if the ratio 
is an improving one, there is the better hope that by proper aids and 
encouragements it may be made to improve more and faster, 
jv It is not, however, against reason, that the argument on this 
subject has to struggle ; but against a feeling of dislike, which will 
only reconcile itself to the unwelcome truth, when every device is 
exhausted by which the recognition of that truth can be evaded. 
It is necessary, therefore, to enter into a detailed examination of 
tEese devices, and to force every position which is taken up byjthe 
enemies of the popula tion principle in their determination to find 
some refuge for the labourers, some plausible means of improving 
their condition, without requiring the exercise, either enforced ^ 
voluntary, of any self-restraint, or any greater control than at present 
over the animal power of multiplication. This will be the object 
61 the next chapter.^ "^ 

* rSee Appendix P. The Movement of Population^ 



CHAPTER XII 

OF POPULAR REMEDIES FOR LOW WAGES 

§ 1. The simplest expedient wMcli can be imagined for keeping 
the wages of labour up to the desirable point, would be to fix them 
by law : and this is virtually the object aimed at in a variety of 
plans which have at different times been, or still are, current, for 
remodeUing the relation between labourers and employers. No 
one probably ever suggested that wages should be absolutely fixed ; 
since the interests of all concerned often require that they should 
be variable ; but some have proposed to fix: a minimum of wages, 
leaving the variations above that point to be adjusted by competition. 
Another plan which has found many advocates among the leaders of 
the operatives, is that councils should be formed, which in England 
have been called local boards of trade, in France " conseils de 
prud'hommes," and other names ; consisting of delegates from the 
workpeople and from the employers, who, meeting in conference, 
should agree upon a rate of wages, and promulgate it from authority, 
to be binding generally on employers and workmen ; the ground 
of decision being, not the state of the labour-market, but natural 
equity ; to provide that the workmen shall have reasonable wages 
and the capitalist reasonable profits. 

Others again (but these are rather philanthropists interesting 
themselves for the labouring classes, than the labouring people 
themselves) are shy of admitting the interference of authority in 
contracts for labour : they fear that if law intervened, it would 
intervene rashly and ignorantly ; they are convinced that two parties, 
with opposite interests, attempting to adjust those interests by 
negotiation through their representatives on principles of equity, 
when no rule could be laid down to determine what was equitable, 
would merely exasperate their differences instead of healing them ; 
but what it is useless to attempt by the legal sanction, these persons 
desire to compass by the moral. Every employer, they think, 
on^Jit to give sufficient wages ; and if he does it not willingly, should 



362 BOOK 11. CHAPTER XII. § 1 

be compelled to it by general opinion ; the test of sufficient wages 
being their own feelings, or what they suppose to be those of the 
pubhc. This is, I think, a fair representation of a considerable body 
of existing opinion on the subject. 

I desire to confine my remarks to the principle involved in all 
these suggestions, without taking into account practical difficulties, 
serious as these must at once be seen to be. I shall suppose that 
by one or other of these contrivances, wages could be kept above 
the point to which they would be brought by competition. This 
is as much as to say, above the highest rate which can be afiorded 
by the existing capital consistently with employing all the labourers. 
For it is a mistake to suppose that competition merely keeps down 
wages. It is equally the means by which they are kept up. When 
there are any labourers unemployed, these, unless maintained by 
charity, become competitors for hire, and wages fall ; but when all 
who were out of work have found employment, wages will not, under 
the freest system of competition, fall lower. There are strange 
notions afloat concerning the nature of competition. Some people 
seem to imagine that its effect is something indefinite ; that the 
competition of sellers may lower prices, and the competition of 
labourers may lower wages, down to zero, or some unassignable 
minimum. Nothing can be more unfounded. Goods can only be 
lowered in price by competition to the point which calls forth buyers 
sufficient to take them ofE ; and wages can only be lowered by 
competition until room is made to admit all the labourers to a share 
in the distribution of the wages-fund. If they fell below this point, 
a portion of capital would remain unemployed for want of labourers ; 
a counter-competition would commence on the side of capitalists, 
and wages would rise. 

Since, therefore, the rate of wages which results from competition 
distributes the whole existing wages-fund among the whole labouring 
population ; if law or opinion succeeds in fixing wages above this 
rate, some labourers are kept out of employment ; and as it is not 
the intention of the philanthropists that these should starve, they 
must be provided for by a forced increase of the wages-fund ; by 
a compulsory saving. It is nothing to fix a minimum of wages, 
unless there be a provision that work, or wages at least, be found for 
all who apply for it. This, accordingly, is always part of the scheme ; 
and is consistent with the ideas of more people than would approve 
of either a legal or a moral minimum of wages. Popular sentiment 
looks upon it as the duty of the rich, or of the state, to find employ- 



POPULAR REMEDIES FOR LOW WAGES 363 

ment for all the poor. If tlie moral influence of opinion does not 
induce the rich to spare from their consumption enough to set all the 
poor to work at " reasonable wages," it is supposed to be incumbent 
on the state to lay on taxes for the purpose, either by local rates or 
votes of public money. The proportion between labour and the | 
wages-fund would thus be modified to the advantage of the labourers, j 
not by restriction of population, but by an increase of capital. 

§ 2. If this claim on society could be limited to the existing 
generation ; if nothing more were necessary than a compulsory 
accumulation, sufficient to provide permanent employment at 
ample wages for the existing numbers of the people ; such a propo- 
sition would have no more strenuous supporter than myself. Society 
mainly consists of those who hve by bodily labour ; and if society, 
that is, if the labourers, lend their physical force to protect indivi- 
duals in the enjoyment of superfluities, they are entitled to do so 
and have always done so, with the reservation of a power to tax 
those superfluities for purposes of pubhc utihty; among which 
purposes the subsistence of the people is the foremost. Since no one 
is responsible for having been born, no pecuniary sacrifice is too 
great to be made by those who have more than enough, for the 
purpose of securing enough to all persons already in existence. 

But it is another thing altogether, when those who have produced 
and accumulated are called upon to abstain from consuming until 
they have given food and clothing, not only to all who now exist, 
but to all whom these or their descendants may think fit to call into 
existence. Such an obUgation, acknowledged and acted upon, would 
suspend all checks, both positive and preventive ; there would be 
nothing to hinder population from starting forward at its rapidest 
rate ; and as the natural increase of capital would, at the best, not 
be more rapid than before, taxation, to make up the growing de- 
ficiency, must advance with the same gigantic strides. The attempt 
would of course be made to exact labour in exchange for support. 
But experience has shown the sort of work to be expected from 
recipients of public charity. When the pay is not given for the sake \ 
of the work, but the work found for the sake of the pay, inefficiency I 
is a matter of certainty : to extract real work from day-labourers j ^ 
without the power of dismissal, is only practicable by the power of 
the lash. It is conceivable,^ doubtlesSj that this objection might be 

* [This and the two following sentences were inserted in the 2nd ed. (1849), 
and allowed to remain in subsequent editions.] 



\ 



364 BOOK 11. CHAPTER XII. § 2 

got over. The fund raised by taxation might be spread over the 
labour market generally, as seems to be intended by the supporters 
of the droit au travail in France ; without giving to any unemployed 
labourer a right to demand support in a particular place or from a 
particular functionary. The power of dismissal as regards indivi- 
dual labourers would then remain ; the government only undertak- 
ing to create additional employment when there was a deficiency, 
and reserving, like other employers, the choice of its own workpeople. 
But let them work ever so efficiently, the increasing population could 
k not, as we have so often shown, increase the produce proportionally : 
'i the surplus, after all were fed, would bear a less and less proportion 
, to the whole produce, and to the population : and the increase of 
people going on in a constant ratio, while the increase of produce 
went on in a diminishing ratio, the surplus would in time be wholly 
' absorbed ; taxation for the support of the poor would engross the 
whole income of the country ; the payers and the receivers would 
) be melted down into one mass. The check to population, either by 
death or prudence, could not then be staved ofi any longer, but 
V must come into operation suddenly and at once ; everything which 
places mankind above a nest of ants or a colony of beavers, having 
perished in the interval. 

These consequences have been so often and so clearly pointed out 
by authors of reputation, in writings known and accessible, that 
ignorance of them on the part of educated persons is no longer 
pardonable. It is doubly discreditable in any person setting up for 
a pubHc teacher, to ignore these considerations ; to dismiss them 
silently, and discuss or declaim on wages and poor-laws, not as if 
these arguments could be refuted, but as if they did not exist. 

Every one has a right to live. We will suppose this granted. 
But no one has a right to bring creatures into fife, to be supported 
by other people. Whoever means to stand upon the first of these 
rights must renounce aU pretension to the last. If a man cannot 
support even himself unless others help him, those others are entitled 
to say that they do not also undertake the support of any offspring 
which it is physically possible for him to summon into the world. 
Yet there are abundance of writers and public speakers, including 
many of most ostentatious pretensions to high feehng, whose views 
of life are so truly brutish, that they see hardship in preventing 
paupers from breeding hereditary paupers in the workhouse itself. 
Posterity will one day ask, with astonishment, what sort of people it 
could be among whom such preachers could find proselytes. 



POPULAR REMEDIES FOR LOW WAGES 365 

It would be possible for tbe state to guarantee employment at 
ample wages to all wbo are born. But if it does this, it is bound in 
self -protection, and for the sake of every purpose for which govern- 
ment exists, to provide that no person shall be born without its 
consent. If the ordinary and spontaneous motives to self-restraint 
are removed, others must be substituted. Restrictions on marriage, 
at least equivalent to those existing [1848] in some of the German 
states, or severe penalties on those who have children when unable 
to support them, would then be indispensable. Society can feed the 
necessitous, if it takes their multiphcation under its control : or 
(if destitute of all moral f eehng for the wretched offspring) it can leave 
the last to their discretion, abandoning the first to their own care. 
But it cannot with impunity take the feeding upon itself, and leave 
the multiplying free. 

To give profusely to the people, whether under the name of 
charity or of employment, without placing them under such 
influences that prudential motives shall act powerfully upon them, 
is to lavish the means of benefiting mankind, without attaining the 
object. Leave the people in a situation in which their condition 
manifestly depends upon their numbers, and the greatest permanent 
benefit may be derived from any sacrifice made to improve the 
physical well-being of the present generation, and raise, by that 
means, the habits of their children. But remove the regulation of 
their wages from their own control ; guarantee to them a certain 
payment, either by law, or by the feeling of the community ; and 
no amount of comfort that you can give them will make either them 
or their descendants look to their own self-restraint as the proper 
means of preserving them in that state. You will only make them 
indignantly claim the continuance of your guarantee to themselves 
and their full complement of possible posterity. 

On these grounds some writers have altogether condemned the 
EngHsh poor-law, and any system of rehef to the able-bodied, at 
least when uncombined with systematic legal precautions against 
over-population. The famous Act of the 43''*^ of EHzabeth under- 
took, on the part of the pubUc, to provide work and wages for all the 
destitute able-bodied : and there is httle doubt that if the intent 
of that Act had been fully carried out, and no means had been 
adopted by the administrators of rehef to neutrahze its natural 
tendencies, the poor-rate would by this time have absorbed the 
whole net produce of the land and labour of the country. It is not 
at all surprising, therefore, that Mr. Malthus and others should at 



366 BOOK II. CHAPTER XII. § 3 

first have concluded against all poor laws whatever. It required 
much experience, and careful examination of different modes of 
poor-law management, to give assurance that the admission of an 
absolute right to be supported at the cost of other people, could 
exist in law and in fact, without fatally relaxing the springs of 
industry and the restraints of prudence. This, however, was 
fuUy substantiated by the investigations of the original Poor Law 
Commissioners. Hostile as they are unjustly accused of being to 
the principle of legal reUef, they are the first who fully proved the 
compatibiHty of any Poor Law, in which a right to relief was re- 
cognised, with the permanent interests of the labouring class and of 
posterity. By a collection of facts, experimentally ascertained in 
parishes scattered throughout England, it was shown that the 
guarantee of support could be freed from its injurious effects upon 
the minds and habits of the people, if the relief, though ample in 
respect to necessaries, was accompanied with conditions which they 
disliked, consisting of some restraints on their freedom, and the 
privation of some indulgences. Under this proviso, it may be 
regarded as irrevocably established, that the fate of no member of 
the community needs be abandoned to chance ; that society can and 
therefore ought to insure every individual belonging to it against 
the extreme of want ; that the condition even of those who are un- 
able to find their own support, needs not be one of physical suffering, 
or the dread of it, but only of restricted indulgence, and enforced 
rigidity of discipline. This is surely something gained for humanity, 
important in itself, and still more so as a step to something beyond ; 
and humanity has no worse enemies than those who lend themselves, 
either knowingly or unintentionally, to bring odium on this law, 
or on the principles in which it originated. 

§ 3. Next to the attempts to regulate wages, and provide 
artificially that all who are wilHng to work shall receive an adequate 
price for their labour, we have to consider another class of popular 
remedies, which do not profess to interfere with freedom of contract ; 
which leave wages to be fixed by the competition of the market, but, 
when they are considered insufficient, endeavour by some subsidiary 
resource to make up to the labourers for the insufficiency. Of this 
nature was the expedient resorted to by parish authorities during 
thirty or forty years previous to 1834, generally known as the 
Allowance System. This was first introduced when, through 
a succession of bad seasons, and consequent high prices of food, the 



POPULAR REMEDIES FOR LOW WAGES 367 

wages of labour had become inadequate to afford to tlie families of 
the agricultural labourers the amount of support to which they had 
been accustomed. Sentiments of humanity, joined with the idea 
then inculcated in high quarters, that people ought not to be allowed 
to suffer for having enriched their country with a multitude of 
inhabitants, induced the magistrates of the rural districts to com- 
mence giving parish rehef to persons already in private employment : 
and when the practice had once been sanctioned, the immediate 
interest of the farmers, whom it enabled to throw part of the support 
of their labourers upon the other inhabitants of the parish, led to a 
great and rapid extension of it. The principle of this scheme being 
avowedly that of adapting the means of every family to its necessities, 
it was a natural consequence that more should be given to the 
married than to the single, and to those who had large families 
than to those who had not : in fact, an allowance was usually 
granted for every child. So direct and positive an encouragement 
to population is not, however, inseparable from the scheme : the 
allowance in aid of wages might be a fixed thing, given to all labourers 
ahke, and as this is the least objectionable form which the system 
can assume, we will give it the benefit of the supposition 

It is obvious that this is merely another mode of fixing a minimum 
of wages ; no otherwise differing from the direct mode, than in 
allomng the employer to buy the labour at its market price, the 
difference being made up to the labourer from a pubHc fund. The 
one kind of guarantee is open to all the objections which have been 
urged against the other. It promises to the labourers that they shall 
all have a certain amount of wages, however numerous they may be : 
and removes, therefore, ahke the positive and the prudential obstacles 
to an unUmited increase. But besides the objections common to all 
attempts to regulate wages without regulating population, the 
allowance system has a pecuHar absurdity of its own. This is, 
that it inevitably takes from wages with one hand what it adds to 
them with the other. There is a rate of wages, either the lowest on 
which the people can, or the lowest on which they will consent, to 
live. We will suppose this to be seven shillings a week. Shocked 
at the wretchedness of this pittance, the parish authorities humanely 
make it up to ten. But the labourers are accustomed to seven, and 
though they would gladly have more, will Uve on that (as the fact 
proves) rather than restrain the instinct of multipHcation. Their 
habits will not be altered for the better by giving them parish pay. 
Eeceiving three shilhngs from the parish, they will be as well off 



±>\j\jx\. XA. v^xi.n.x xjiixv J3^±i. g t 



as before thougli they should increase sufficiently to bring down 
wages to four shillings. They will accordingly people down to that 
point ; or perhaps, without waiting for an increase of numbers, 
there are unemployed labourers enough in the workhouse to produce 
the effect at once. It is well known that the allowance system did 
practically operate in the mode described, and that under its influence 
wages sank to a lower rate than had been known in England before. 
During the last century, under a rather rigid administration of the 
poor laws, population increased slowly, and agricultural wages were 
considerably above the starvation point. Under the allowance 
system the people increased so fast, and wages sank so low, that with 
wages and allowance together, families were worse off than they 
had been before with wages alone. When the labourer depends 
solely on wages, there is a virtual minimum. If wages fall below the 
lowest rate which will enable the population to be kept up, depopula- 
tion at least restores them to that lowest rate. But if the deficiency 
is to be made up by a forced contribution from all who have anything 
to give, wages may fall below starvation point ; they may fall 
almost to zero. This deplorable system, worse than any other 
form of poor-law abuse yet invented, inasmuch as it pauperizes not 
merely the imemployed part of the population but the whole, received 
a severe check from the Poor Law of 1834 : I wish it could be said 
that there are no signs of its revival.^ 

§ 4. But while this is generally condemned, there is another 
mode of rehef in aid of wages, which is still highly popular ; a mode 
greatly preferable, morally and socially, to parish allowance, but 
tending, it is to be feared, to a very similar economical result : I 
mean the much-boasted Allotment System. This, too, is a con- 
trivance to compensate the labourer for the insufficiency of his 
wages, by giving him something else as a supplement to them : but 
instead of having them made up from the poor-rate, he is enabled 
to make them up for himself, by renting a small piece of ground, 
which he cultivates like a garden by spade labour, raising potatoes 
and other vegetables for home consumption, with perhaps some 
additional quantity for sale. If he hires the ground ready manured, 
he sometimes pays for it at as high a rate as eight pounds an acre : 
but getting his own labour and that of his family for nothing, he 

1 [The present text dates only from the 7th ed. (1871). Until then it had 
read : " This deplorable system . . . has been abolished, and of this one abuse 
at least it may be said that nobody professes to wish for its revival."] 



POPULAR REMEDIES FOR LOW WAGES 369 

is able to gain several pounds by it even at so higb a rent.* The 
patrons of the system make it a great point that the allotment shall 
be in aid of wages, and not a substitute for them ; that it shall not 
be such as a labourer can Hve on, but only sufficient to occupy the 
spare hours and days of a man in tolerably regular agricultural 
employment, with assistance from his wife and children. They 
usually limit the extent of a single allotment to a quarter, 
or something between a quarter and half an acre. If it exceeds this, 
without being enough to occupy him entirely, it will make him, they 
say, a bad and uncertain workman for hire : if it is sufficient to 
take him entirely out of the class of hired labourers, and to become 
his sole means of subsistence, it will make him an Irish cottier : 
for which assertion, at the enormous rents usually demanded, there 
is some foundation. But in their precautions against cottierism, 
these well-meaning persons do not perceive, that if the system they 
patronize is not a cottier system, it is, in essentials, neither more 
nor less than a system of conacre. 

There is no doubt a material difierence between eking out { 
insufficient wages by a fund raised by taxation, and doing the j 
same thing by means which make a clear addition to the gross i 
produce of the comitry. There is also a difierence between helping 
a labourer by means of his own industry, and subsidizing him in a ] 
mode which tends to make him careless and idle. On both these * 
points, allotments have an unquestionable advantage over parish 
allowances. But in their efiect on wages and population, I see no 
reason why the two plans should substantially differ. All subsidies 
in aid of wages enable the labourer to do with less remuneration, » 
and therefore ultimately bring down the price of labour by the full 
amount, unless a change be wrought in the ideas and requirements 
of the labouring class ; an alteration in the relative value which 
they set upon the gratification of their instincts, and upon the 
increase of their comforts and the comforts of those connected 
with them. That any such change in their character should be 
produced by the allotment system, appears to me a thing not to be 
expected. The possession of land, we are sometimes told, renders 
the labourer provident. Property in land does so ; or what is 
equivalent to property, occupation on fixed terms and on a 
permanent tenure. But mere hiring from year to year was never 
found to have any such effect. Did possession of land render the 

* See the Evidence on the subject of Allotments, collected by the Com 
missioners of Poor Law Enquiry. 



m BOOK II. CHAPTER XII. § 4 

Irisliman provident ? Testimonies, it is true, abound, and I do 
not seek to discredit them, of tlie beneficial change produced in the 
conduct and condition of labourers, by receiving allotments. Such 
an effect is to be expected while those who hold them are a small 
number ; a privileged class, having a status above the common level, 
which they are unwiUing to lose. They are also, no doubt, almost 
always, originally a select class, composed of the most favourable 
specimens of the labouring people : which, however, is attended 
with the inconvenience that the persons to whom the system 
faciKtates marrying and having children, are precisely those who 
would otherwise be the most hkely to practise prudential restraint. 
As affecting the general condition of the labouring class, the scheme, 
as it seems to me, must be either nugatory or mischievous. If 
only a few labourers have allotments, they are naturally those who 
could do best without them, and no good is done to the class : while, 
if the system were general, and every or almost every labourer had 
an allotment, I beHeve the effect would be much the same as when 
every or almost every labourer had an allowance in aid of wages. I 
think there can be no doubt that if, at the end of the last century, 
the Allotment instead of the Allowance system had been generally 
adopted in England, it would equally have broken down the practical 
restraints on population which at that time did really exist ; popula- 
tion would have started forward exactly as in fact it did ; and in 
twenty years, wages plus the allotment would have been, as wages 
plus the allowance actually were, no more than equal to the former 
wages without any allotment. The only difference in favour of 
allotments would have been, that they make the people grow theil 
own poor-rates. 

I am at the same time quite ready to allow, that in some circum- 
stances, the possession of land at a fair rent, even without ownership, 
by the generahty of labourers for hire, operates as a cause not of low, 
but of high wages. This, however, is when their land renders them, 
to the extent of actual necessaries, independent of the market for 
labour. There is the greatest difference between the position of 
people who live by wages, with land as an extra resource, and of 
people who can, in case of necessity, subsist entirely on their land, 
and only work for hire to add to their comforts. Wages are likely 
to be high where none are compelled by necessity to sell their labour. 
" People who have at home some kind of property to apply their 
labour to, will not sell their labour for wages that do not afford them 
a better diet than potatoes and maize, although in saving for 



POPULAR REMEDIES FOR LOW WAGES 371 

themselves, they may live very much on potatoes and maize. We are 
often surprised in travelling on the Continent, to hear of a rate of 
day's wages very high, considering the abundance and cheapness 
of food. It is want of the necessity or the incHnation to take work, 
that makes day-labour scarce, and, considering the price of pro- 
visions, dear, in many parts of the Continent, where property in 
land is widely diffused among the people."* There are parts of the 
Continent, where, even of the inhabitants of the towns, scarcely one 
seems to be exclusively dependent on his ostensible employment ; 
and nothing else can explain the high price they put on their services, 
and the carelessness they evince as to whether they are employed 
at all. But the effect would be far different if their land or other 
resources gave them only a fraction of a subsistence, leaving them 
under an undiminished necessity of selhng their labour for wages 
in an overstocked market. Their land would then merely enable 
them to exist on smaller wages, and to carry their multipHcation so 
much the further before reaching the point below which they either 
could not, or would not descend. 

To the view I have taken of the effect of allotments, I see no argu- 
ment which can be opposed, but that employed by Mr. Thornton,t 
with whom on this subject I am at issue. His defence of allotments 
is grounded on the general doctrine, that it is only the very poor who 
multiply without regard to consequences, and that if the condition 
of the existing generation could be greatly improved, which he thinks 
might be done by the allotment system, their successors would grow 
up with an increased standard of requirements, and would not have 
famiUes until they could keep them in as much comfort as that in 
which they had been brought up themselves. I agree in as much of 
this argument as goes to prove that a sudden and very great improve- 
ment in the condition of the poor has always, through its effect on 
their habits of life, a chance of becoming permanent. What hap- 
pened at the time of the French Revolution is an example. But 
I cannot think that the addition of a quarter or even half an acre 
to every labourer's cottage, and that too at a rack rent, would (after 
the fall of wages which would be necessary to absorb the already 
existing mass of pauper labour) make so great a difference in the 
comforts of the family for a generation to come, as to raise up 
from childhood a labouring population with a really higher per- 
manent standard of requirements and habits. So small a portion 

* Laing's Notes of a Traveller, p. 456. 

f See Thornton on Over-Population, eh. viiL 



372 BOOK II. CHAPTER XII. § 4 

of land could only be made a permanent benefit, by holding out 
encouragement to acquire by industry and saving, the means of 
buying it outright : a permission which, if extensively made use of, 
would be a kind of education in forethought and frugaUty to the 
entire class, the effects of which might not cease with the occasion. 
The benefit would however arise, not from what was given them, but 
from what they were stimulated to acquire. 

No remedies for low wages have the smallest chance of being 
efiicacious, which do not operate on and through the minds and 
habits of the people. While these are unafiected, any contrivance, 
even if successful, for temporarily improving the condition of the 
very poor, would but let sHp the reins by which population was 
previously curbed ; and could only, therefore, continue to produce 
its efiect, if, by the whip and spur of taxation, capital were 
compelled to follow at an equally accelerated pace. But this process 
could not possibly continue for long together, and whenever it 
stopped, it would leave the country with an increased number of 
the poorest class, and a diminished proportion of all except the 
poorest, or, if it continued long enough, with none at all. For " to 
this complexion must come at last " all social arrangements, which 
remove the natural checks to population without substituting any 
others. 



CHAPTER XIII 

THE REMEDIES FOR LOW WAGES FURTHER CONSIDERED 

§ 1. By what means, then, is poverty to be contended against ? 
How is the evil of low wages to be remedied ? If the expedients 
usually recommended for the purpose are not adapted to it, can no 
others be thought of ? Is the problem incapable of solution ? 
Can poHtical economy do nothing, but only object to everything, 
and demonstrate that nothing can be done ? 

If this were so, political economy might have a needful, but 
would have a melancholy, and a thankless task. If the bulk of 
the human race are always to remain as at present, slaves to toil 
in which they have no interest, and therefore feel no interest — 
drudging from early morning till late at night for bare necessaries, 
and with all the intellectual and moral deficiencies which that 
impHes — without resources either in mind or feelings — untaught, for 
they cannot be better taught than fed ; selfish, for all their thoughts 
are acquired for themselves ; without interests or sentiments as 
citizens and members of society, and with a sense of injustice 
rankling in their minds, equally for what they have not, and for 
what others have ; I know not what there is which should make a 
person with any capacity of reason, concern himself about the 
destinies of the human race. There would be no wisdom for any 
one but in extracting from life, with Epicurean indifference, as 
much personal satisfaction to himself and those with whom he 
sympathises, as it can yield without injury to any one, and letting 
the unmeaning bustle of so-called civiHzed existence roll by unheeded. 
But there is no ground for such a view of human affairs. Poverty, 
like most social evils, exists because men follow their brute instincts 
without due consideration. But society is possible, precisely because 
man is not necessarily a brute. Civilization in every one of its 
aspects is a struggle against the animal instincts. Over some even 
of the strongest of them, it has shown itself capable of acquiring 



374 BOOK 11. CHAPTER XIII. § 1 

abundant control. It has artificialized large portions of mankind 
to such an extent, that of many of their most natural inclinations 
they have scarcely a vestige or a remembrance left. If it has not 
brought the instinct of population under as much restraint as is 
needful, we must remember that it has never seriously tried. What 
efiorts it has made, have mostly been in the contrary direction. 
ReHgion, morality, and statesmanship have vied with one another in 
incitements to marriage, and to the multiplication of the species, 
so it be but in wedlock. EeHgion has not even yet discontinued 
its encouragements. The Roman CathoUc clergy (of any other 
clergy it is unnecessary to speak, since no other have any considerable 
influence over the poorer classes) everywhere think it their duty to 
promote marriage, in order to prevent fornication. There is still 
in many minds a strong reUgious prejudice against the true doctrine. 
The rich, provided the consequences do not touch themselves, think 
it impugns the wisdom of Providence to suppose that misery can 
result from the operation of a natural propensity : the poor think 
that " God never sends mouths but he sends meat." No one would 
guess from the language of either, that man had any voice or choice 
in the matter. So complete is the confusion of ideas on the whole 
subject ; owing in a great degree to the mystery in which it is 
shrouded by a spurious delicacy, which prefers that right and 
wrong should be mismeasured and confounded on one of the subjects 
most momentous to human welfare, rather than that the subject 
should be freely spoken of and discussed. People are Httle aware 
of the cost to mankind of this scrupulosity of speech. The diseases 
of society can, no more than corporal maladies, be prevented or 
cured without being spoken about in plain language. All experience 
shows that the mass of mankind never judge of moral questions for 
themselves, never see anything to be right or wrong until they have 
been frequently told it ; and who tells them that they have any duties 
in the matter in question, while they keep within matrimonial 
limits ? Who meets with the smallest condemnation, or rather, 
who does not meet with sympathy and benevolence, for any 
amount of evil which he may have brought upon himself and those 
dependent on him, by this species of incontinence ? While a man 
who is intemperate in drink, is discountenanced and despised by 
all who profess to be moral people,^ it is one of the chief grounds 

* [The remainder of this sentence appeared first in the 3rd ed. (1852). In 
the 1st and 2nd ed. (1848, 1849), the text ran : " Is it not to this hour the 
favourite recommendation for any parochial office bestowed by popular election 



REMEDlJiS FOR LOW WAGES Zl^ 

made use of in appeals to the benevolent, that the applicant has a 
large family and is unable to maintain them.* 

One cannot wonder that silence on this great department of 
human duty should produce unconsciousness of moral obligations, 
when it produces obHvion of physical facts. That it is possible to 
delay marriage, and to Hve in abstinence while unmarried, most 
people are willing to allow ; but when persons are once married, the 
idea, in this country, never seems to enter any one's mind that 
having or not having a family, or the number of which it shall 
consist, is amenable to their own control. One would imagine that 
children were rained down upon married people, direct from heaven, 
without their being art or part in the matter ; that it was really, as 
the common phrases have it, God's will, and not their own, which 
decided the numbers of their offspring. Let us see what is a Con- 
tinental philosopher's opinion on this point ; a man among the most 
benevolent of his time, and the happiness of whose married life has 
been celebrated. 

" When dangerous prejudices," says Sismondi,t " have not 
become accredited, when a morality contrary to our true duties 
towards others, and especially towards those to whom we have given 
life, is not inculcated in the name of the most sacred authority ; 
no prudent man contracts matrimony before he is in a condition 
which gives him an assured means of living, and no married man has 
a greater number of children than he can properly bring up. The 
head of a family thinks, with reason, that his children may be 
contented with the condition in which he himself has lived ; and his 
desire will be that the rising generation should represent exactly 
the departing one : that one son and one daughter arrived at the 
marriageable age should replace his own father and mother ; that 
the children of his children should in their turn replace himself and 
his wife ; that his daughter should find in another family the precise 
equivalent of the lot which will be given in his own family to the 
daughter of another, and that the income which sufficed for the 
parents will suffice for the children." In a country increasing in 

to have a large family and to be unable to maintain them ? Do not the candidates 
placard their intemperence upon walls, and publish it through the town 
in circulars ? " Cf. Dickens, The Election for Beadle in Sketches hy Boz, " Our 
Parish," ch. iv.] 

* Little improvement can be expected in morality until the producing large 
families is regarded with the same feeUngs as drunkenness or any other physical 
excess. But while the aristocracy and clergy are foremost to set the example 
of this kind of incontinence, what can be expected of the poor ? 

t Nouveaux PrincApes, liv. vii. ch. 5. 



376 BOOK II. CHAPTER Kill. § 2 

wealth, some increase of numbers would be admissible, but that is a 
question of detail, not of principle. " Whenever this family has 
been formed, justice and humanity require that he should impose 
on himself the same restraint which is submitted to by the unmarried. 
When we consider how small, in every country, is the number of 
natural children, we must admit that this restraint is on the whole 
sufficiently effectual. In a country where population has no room 
to increase, or in which its progress must be so slow as to be hardly 
perceptible, when there are no places vacant for new establishments, 
a father who has eight children must expect, either that six of them 
will die in childhood, or that three men and three women among his 
cotemporaries, and in the next generation three of his sons and three 
of his daughters, will remain unmarried on his account." 

§ 2. Those who think it hopeless that the labouring classes 
should be induced to practise a sufficient degree of prudence in regard 
to the increase of their families, because they have hitherto stopt 
short of that point, show an inability to estimate the ordinary 
principles of human action. Nothing more would probably be 
necessary to secure that result, than an opinion generally diffused 
that it was desirable. As a moral principle, such an opinion has 
never yet existed in any country : it is curious that it does not so 
exist in countries in which, from the spontaneous operation of 
individual forethought, population is, comparatively speaking, 
efficiently repressed. What is practised as prudence is still not 
recognised as duty ; the talkers and writers are mostly on the other 
side, even in France, where a sentimental horror of Malthus is almost 
as rife as in this country. Many causes may be assigned, besides the 
modern date of the doctrine, for its not having yet gained possession 
of the general mind. Its truth has, in some respects, been its 
detriment. One may be permitted to doubt whether, except among 
the poor themselves (for whose prejudices on this subject there is 
no difficulty in accounting) there has ever yet been, in any class of 
society, a sincere and earnest desire that wages should be high. There 
has been plenty of desire to keep down the poor-rate ; but, that 
done, people have been very wilHng that the working classes should 
be ill off. Nearly all who are not labourers themselves, are 
employers of labour, and are not sorry to get the commodity cheap. 
It is a factj that even Boards of Guardians, who are supposed to 
be official apostles of anti-population doctrines, will seldom hear 
patiently of anything which they are pleased to designate as 



REMEDIES FOR LOW WAGES 377 

Malthusianism. Boards of Guardians in rural districts, principally 
consist of farmers, and farmers, it is well known, in general dislike 
even allotments, as making the labourers " too independent." From 
the gentry, who are in less immediate contact and collision of interest 
with the labourers, better things might be expected, and the gentry 
of England are usually charitable. But charitable people have 
human infirmities, and would, very often, be secretly not a little 
dissatisfied if no one needed their charity : it is from them one 
oftenest hears the base doctrine, that God has decreed there shall 
always be poor. When one adds to this, that nearly every person 
who has had in him any active spring of exertion for a social object, 
has had some favourite reform to efiect which he thought the 
admission of this great principle would throw into the shade ; has 
had corn laws to repeal, or taxation to reduce, or small notes to 
issue, or the charter to carry, or the church to revive or abolish, or 
the aristocracy to pull down, and looked upon every one as an enemy 
who thought anything important except his object ; it is scarcely 
wonderful that since the population doctrine was first promulgated, 
nine-tenths of the talk has always been against it, and the 
remaining tenth only audible at intervals ; and that it has not yet 
penetrated far among those who might be expected to be the least 
wiUing recipients of it, the labourers themselves. 

But let us try to imagine what would happen if the idea became 
general among the labouring class, that the competition of too great 
numbers was the special cause of their poverty ; so that every 
labourer looked (with Sismondi) upon every other who had more 
than the number of children which the circumstances of society 
allowed to each, as doing him a wrong — as filling up the place which 
he was entitled to share. Any one who supposes that this state of 
opinion would not have a great effect on conduct, must be 
profoundly ignorant of human nature ; can never have considered 
how large a portion of the motives which induce the generahty of 
men to take care even of their own interest, is derived from regard 
for opinion — from the expectation of being dishked or despised for 
not doing it. In the particular case in question, it is not too much 
to say that over-indulgence is as much caused by the stimulus of 
opinion as by the mere animal propensity ; since opinion universally, 
and especially among the most uneducated classes, has connected 
ideas of spirit and power with the strength of the instinct, and of 
inferiority with its moderation or absence : a perversion of senti- 
ment caused by its being the means, and the stamp, of a dominion 



378 BOOK II. CHAPTER XIII. § 2 

exercised over other human beings. The effect would be great of 
merely removing this factitious stimulus ; and when once opinion 
shall have turned itself into an adverse direction, a revolution will 
soon take place in this department of human conduct. We are 
often told that the most thorough perception of the dependence of 
wages on population will not influence the conduct of a labouring 
man, because it is not the children he himself can have that will 
produce any effect in generally depressing the labour market. True : 
and it is also true, that one soldier's running away will not lose the 
battle ; accordingly it is not that consideration which keeps each 
soldier in his rank : it is the disgrace which naturally and inevitably 
attends on conduct by any one individual, which if pursued by a 
majority everybody can see would be fatal. Men are seldom found 
to brave the general opinion of their class, unless supported either 
by some principle higher than regard for opinion, or by some strong 
body of opinion elsewhere. 

It must be borne in mind also, that the opinion here in question, 
as soon as it attained any prevalence, would have powerful auxiUaries 
in the great majority of women. It is seldom by the choice of the 
wife that famihes are too numerous ; on her devolves (along with all 
the physical suffering and at least a full share of the privations) the 
whole of the intolerable domestic drudgery resulting from the excess. 
To be reheved from it would be hailed as a blessing by multitudes of 
women who now never venture to urge such a claim, but who would 
urge it, if supported by the moral feelings of the community. Among 
the barbarisms which law and morals have not yet ceased to sanction, 
the most disgusting surely is, that any human being should be 
permitted to consider himself as having a riglit to the person of 
another. 

If the opinion were once generally established among the labour- 
ing class that their welfare required a due regulation of the numbers 
of families, the respectable and well-conducted of the body would 
conform to the prescription, and only those would exempt them- 
selves from it, who were in the habit of making light of social 
obligations generally; and there would be then an evident justification 
for converting the moral obligation against bringing children into 
the world who are a buithen to the community, into a legal one ; 
just as in many other cases of the progress of opinion, the law ends 
by enforcing against recalcitrant minorities obligations which to be 
useful must be general, and which, from a sense of their utility, a 
large majority have voluntarily consented to take upon themselves. 



i\jXJi.TXJiiX/J.-liiia JUXJJLt) J-iV^ *7 »T XVVJTiliO 



There would be no need, however, of legal sanctions, if women 
were admitted, as on all other grounds they have the clearest 
title to be, to the same rights of citizenship with men. Let them 
cease to be confined by custom to one physical function as their 
means of Hving and their source of influence, and they would have 
for the first time an equal voice with men in what concerns that 
function : and of all the improvements in reserve for mankind 
which it is now possible to foresee, none might be expected to be so 
fertile as this in almost every kind of moral and social benefit.^ 

It remains to consider what chance there is that opinions and 
feelings, grounded on the law of the dependence of wages on 
population, will arise among the labouring classes ; and by what 
means such opinions and feeHngs can be called forth. Before con- 
sidering the grounds of hope on this subject, a hope which many 
persons, no doubt, will be ready, without consideration, to pronounce 
chimerical, I will remark, that unless a satisfactory answer can 
be made to these two questions, the industrial system prevaiUng 
in this country, and regarded by many writers as the ne plus ultra 
of civilization — the dependence of the whole labouring class of the 
community on the wages of hired labour, is irrevocably condemned. 
The question we are considering is, whether, of this state of things, 
over-population and a degraded condition of the labouring class 
are the inevitable consequence. If a prudent regulation of popula- 
tion be not reconcilable with the system of hired labour, the system 
is a nuisance, and the grand object of economical statesmanship 
should be (by whatever arrangements of property, and alterations in 
the modes of applying industry), to bring the labouring people under 
the influence of stronger and more obvious inducements to this 
kind of prudence, than the relatioii of workmen and employers can 
afford. 

But there exists no such incompatibility. The causes of poverty 
are not so obvious at first sight to a population of hired labourers, 
as they are to one of proprietors, or as they would be to a socialist 
community. They are, however, in no way mysterious. The 
dependence of wages on the number of the competitors for employ- 
ment, is so far from hard of comprehension, or unintelligible to the 
labouring classes, that by great bodies of them it is already 
recognised and habitually acted on. It is familiar to aU Trade 
Unions : every successful combination to keep up wages owes its 

^ [The two last sentences were added in the 3rd ed. (1852).] 



success to contrivances for restricting tlie number of the competitors ; 
all skilled trades are anxious to keep down their own numbers, and 
many impose, or endeavour to impose, as a condition upon employers, 
that they shall not take more than a prescribed number of appren- 
tices. There is, of course, a great difference between limiting their 
numbers by excluding other people, and doing the same thing by a 
restraint imposed on themselves : but the one as much as the other 
shows a clear perception of the relation between their numbers and 
their remuneration. The principle is understood in its appHcation 
to any one employment, but not to the general mass of employment. 
For this there are several reasons : first, the operation of causes is 
more easily and distinctly seen in the more circumscribed field ; 
secondly, skilled artizans are a more intelHgent class than ordinary 
manual labourers : and the habit of concert, and of passing in 
review their general condition as a trade, keeps up a better under- 
standing of their collective interests : thirdly and lastly, they are 
the most provident, because they are the best off, and have the most 
to preserve. What, however, is clearly perceived and admitted in 
particular instances, it cannot be hopeless to see understood and 
acknowledged as a general truth. Its recognition, at least in 
theory, seems a thing which must necessarily and immediately come 
to pass, when the minds of the labouring classes become capable of 
taking any rational view of their own aggregate condition. Of this 
the great majority of them have until now been incapable, either 
from the uncultivated state of their intelHgence, or from poverty, 
which leaving them neither the fear of worse, nor the smallest hope 
of better, makes them careless of the consequences of their actions, 
and without thought for the future. 

§ 3. For the purpose therefore of altering the habits of the 
labouring people, there is need of a twofold action, directed 
simultaneously upon their intelHgence and their poverty. An 
effective national education of the children of the labouring class, is 
the first thing needful ; and, coincidently with this, a system of 
measures which shall (as the Eevolution did in France) extinguish 
extreme poverty for one whole generation. 

This is not the place for discussing, even in the most general 
manner, either the principles or the machinery of national education. 
But it is to be hoped that opinion on the subject is advancing, and 
that an education of mere words would not now be deemed sufficient, 
slow as our progress is toward providing anything better even for 



tlie classes to whom society professes to give the very best education 
it can devise. Without entering into disputable points, it may be 
asserted without scruple, that the aim of all intellectual training for 
the mass of the people should be to cultivate common sense ; to 
quahfy them for forming a sound practical judgment of the circum- 
stances by which they are surrounded. Whatever, in the intellectual 
department, can be superadded to this, is chiefly ornamental ; 
while this is the indispensable groundwork on which education 
must rest. Let this object be acknowledged and kept in view a? 
the thing to be first aimed at, and there will be Httle difficulty in 
deciding either what to teach, or in what manner to teach it. 

An education directed to difiuse good sense among the people, 
with such knowledge as would quahfy them to judge of the ten- 
dencies of their actions, would be certain, even without any direct 
inculcation, to raise up a pubHc opinion by which intemperance 
and improvidence of every kind would be held discreditable, and 
the improvidence which overstocks the labour market would be 
severely condemned, as an offence against the common weal. But 
though the sufficiency of such a state of opinion, supposing it formed, 
to keep the increase of population within proper Hmits, cannot, I 
think, be doubted ; yet, for the formation of the opinion, it would 
not do to trust to education alone. Education is not compatible 
with extreme poverty. It is impossible effectually to teach an 
indigent population. And it is difficult to make those feel the value 
of comfort who have never enjoyed it, or those appreciate the 
wretchedness of a precarious subsistence, who have been made 
reckless by always Hving from hand to mouth. Individuals often 
struggle upwards into a condition of ease ; but the utmost that 
can be expected from a whole people is to maintain themselves in 
it ; and improvement in the habits and requirements of the mass of 
unskilled day-labourers wiU be difficult and tardy, unless means 
can be contrived of raising the entire body to a state of tolerable 
comfort, and maintaining them in it until a new generation grows up. 

Towards effecting this object there are two resources available, 
without wrong to any one, without any of the Habihties of mischief 
attendant on voluntary or legal charity, and not only without 
weakening, but on the contrary strengthening, every incentive to 
industry, and every motive to forethought. 

§ 4. The first is a great national measure of colonization. I 
mean, a grant of public money, sufficient to remove at once, and 



aS2 JbUUA. 11. UMAriJlilt JLlll. § 4: 

establisli in the colonies, a considerable fraction of the youthful 
agricultural population. By giving the preference, as Mr. 
Wakefield proposes, to young couples, or when these cannot be 
obtained, to famihes with children nearly grown up, the expenditure 
would be made to go the farthest possible towards accompUshing the 
end, while the colonies would be suppUed with the greatest amount 
of what is there in deficiency and here in superfluity, present and 
prospective labour. It has been shown by others, and the grounds 
of the opinion will be exhibited in a subsequent part of the present 
work, that colonization on an adequate scale might be so conducted 
as to cost the country nothing, or nothing that would not be 
certainly repaid ; and that the funds required, even by way of 
advance, would not be drawn from the capital employed in 
maintaining labour, but from that surplus which cannot find 
employment at such profit as constitutes an adequate remuneration 
for the abstinence of the possessor, and which is therefore sent 
abroad for investment, or wasted at home in reckless speculations. 
That portion of the income of the country which is habitually 
ineffective for any purpose of benefit to the labouring class, 
would bear any draught which it could be necessary to make on it 
for the amount of emigration which is here in view. 

1 The second resource would be, to devote all common land, 
hereafter brought into cultivation, to raising a class of small 
proprietors. It has long enough been the practice to take these 
lands from pubHc use for the mere purpose of adding to the 
domains of the rich. It is time that what is left of them should be 
retained as an estate sacred to the benefit of the poor. The 
machine for administering it already exists, having been created 
by the General Inclosure Act. What I would propose (though, 

^ [The following sentences of the origmal text were omitted in the 3rd ed. 
(1852) from the begin|iing of this paragraph : " To the case of Ireland, in her 
present crisis of transition, colonization, as the exclusive remedy, is, I conceive, 
unsuitable. The Irish are nearly the worst adapted people in Europe for settlers 
in the wilderness : nor should the founders of nations, destined perhaps to be 
the most powerful in the world, be drawn principally from the least civilized and 
least improved inhabitants of old countries. It is most fortunate therefore 
that the unoccupied lands of Ireland herself afford a resource so nearly adequate 
to the emergency, as reduces emigration to a rank merely subsidiary. In 
England and Scotland, with a population much less excessive, and better adapted 
to a settler's life, colonization must be the chief resource for easing the labour 
market, and improving the condition of the existing generation of labourers so 
materially as to raise the permanent standard of habits in the generation 
following. But England too has waste lands, though less extensive than those 
of Ireland : and the second resource, &c."] 



REMEDIES FOR LOW WAGES - 383 

I confess, with small hope of its being soon adopted) is, that in 
all future cases in which common land is permitted to be enclosed, 
such portion should first be sold or assigned as is sufficient to 
compensate the owners of manorial or common rights, and that 
the remainder should be divided into sections of five acres or 
thereabouts, to be conferred in absolute property on individuals 
of the labouring class who would reclaim and bring them into 
cultivation by their own labour. The preference should be given 
to such labourers, and there are many of them, as had saved 
enough to maintain them until their first crop was got in, or 
whose character was such as to induce some responsible person 
to advance to them the requisite amount on their personal 
security. The tools, the manure, and in some cases the subsistence 
also might be supplied by the parish, or by the state ; interest 
for the advance, at the rate yielded by the public funds, being 
laid on as a perpetual quit-rent, with power to the peasant to 
redeem it at any time for a moderate number of years' purchase. 
These Httle landed estates might, if it were thought necessary, 
be made indivisible by law ; though, if the plan worked in the 
manner designed, I should not apprehend any objectionable 
degree of subdivision. In case of intestacy, and in default of 
amicable arrangement among the heirs, they might be bought by 
government at their value, and regranted to some other labourer 
who would give security for the price. The desire to possess one 
of these small properties would probably become, as on the 
Continent, an inducement to prudence and economy pervading the 
whole labouring population ; and that great desideratum among a 
people of hired labourers would be provided, an intermediate class 
between them and their employers ; affording them the double 
advantage, of an object for their hopes, and, as there would be good 
reason to anticipate, an example for their imitation. 

It would, however, be of httle avail that either or both of these 
measures of rehef should be adopted, unless on such a scale as would 
enable the whole body of hired labourers remaining on the soil to 
obtain not merely employment, but a large addition to the present 
wages — such an addition as would enable them to five and bring up 
their children in a degree of comfort and independence to which 
they have hitherto been strangers. When the object is to raise the 
permanent condition of a people, small means do not merely 
produce small effects, they produce no effect at all. Unless comfort 
can be made as habitual to a whole generation as indigence is now, 



f 

384 BOOK II. CHAPTER XIII. § 4 ' 

nothing is accomplished ; and feeble half -measures do but fritter 
away resources, far better reserved until the improvement of public 
opinion and of education shall raise up politicians who will not think 
that merely because a scheme promises muchj the part of 
statesmanship is to have nothing to do with it. 

y 1 1 have left the preceding paragraphs as they were written, since 
they remain true in principle, though it is no longer urgent to apply 
these specific recommendations to the present state of this country. 
The extraordinary cheapening of the means of transport, which is 
one of the great scientific achievements of the age, and the 
knowledge which nearly all classes of the people have now acquired, or 
are in the way of acquiring, of the condition of the labour market in 
remote parts of the world, have opened up a spontaneous emigration 
from these islands to the new countries beyond the ocean, which 
does not tend to diminish, but to increase ; and which, without any 
national measure of systematic colonization, may prove sufficient 
to effect a material rise of wages in Great Britain, as it has already 
done in Ireland, and to maintain that rise unimpaired for one or 
more generations. Emigration, instead of an occasional vent, is 
becoming a steady outlet for superfluous numbers ; and this new 
fact in modern history, together with the flush of prosperity 
occasioned by free trade, have granted to this overcrowded country a 
temporary breathing-time, capable of being employed in accomplish- 
ing those moral and intellectual improvements in all classes of the 
people, the very poorest included, which would render improbable 
any relapse into the over-peopled state. Whether this golden 
opportunity will be properly used, depends on the wisdom of our 
councils ; and whatever depends on that, is always in a high degree 
precarious. The grounds of hope are, that there has been no time 
in our history when mental progress has depended so Httle on govern- 
ments, and so much on the general disposition of the people ; none 
in which the spirit of improvement has extended to so many branches 
of human affairs at once, nor in which all kinds of suggestions tend- 
ing to the public good in every department, from the humblest 
physical to the highest moral or intellectual, were heard with so 
little prejudice, and had so good a chance of becoming known and 
being fairly considered. yy 

-y 

» [Added in the 6th ed. (1865).^ 



CHAPTEE XIV 

OF THE DIFFERENCES OF WAGES IN DIFFERENT 
EMPLOYMENTS 

§ 1. In treating of wages, we have hitlierto confined ourselves 
to the causes which operate on them generally, and en masse ; the 
laws which govern the remuneration of ordinary or average labour : 
without reference to the existence of different kinds of work which 
are habitually paid at different rates, depending in some degree on 
different laws. We will now take into consideration these differences, 
and examine in what manner they affect or are affected by the 
conclusions already estabHshed. 

A well-known and very popular chapter of Adam Smith * 
contains the best exposition yet given of this portion of the subject. 
I cannot indeed think his treatment so complete and exhaustive as 
it has sometimes been considered ; but, as far as it goes, his analysis 
is tolerably successful. 

The differences, he says, arise partly from the poUcy of Europe, 
which nowhere leaves things at perfect Uberty, and partly " from 
certain circumstances in the employments themselves, which either 
really, or at least in the imaginations of men, make up for a small 
pecuniary gain in some, and counterbalance a great one in others." 
These circumstances he considers to be : " First, the agreeableness 
or disagreeableness of the employments themselves ; secondly, the 
easiness and cheapness, or the difficulty and expense of learning 
them ; thirdly, the constancy or inconstancy of employment in them ; 
fourthly, the small or great trust which must be reposed in those who 
exercise them ; and fifthly, the probabiHty or improbability of 
success in them." 

Several of these points he has very copiously illustrated : though 
his examples are sometimes drawn from a state of facts now no 
longer existing. " The wages of labour vary with the ease or 

* Wealth of Nations, book i. ch. 10. 

o 



386 [BOOK II. CHAPTER XIV. § 1 

hardship, the cleanliness or dirtiness, the honourableness or dishonour- 
ableness of the employment. Thus, in most places, take the year 
round, a journeyman tailor earns less than a journeyman weaver. 
His work is much easier." Things have much altered, as to a 
weaver's remuneration, since Adam Smith's time ; and the artizan 
whose work was more difficult than that of a tailor, can never, I 
think, have been the common weaver. " A journeyman weaver 
earns less than a journeyman smith. His work is not always easier, 
but it is much cleanlier." A more probable explanation is, that it 
requires less bodily strength. " A journeyman blacksmith, though 
an artificer, seldom earns so much in twelve hours as a collier, who is 
only a labourer, does in eight. His work is not quite so dirty, is less 
dangerous, and is carried on in daylight, and above groimd. Honour 
makes a great part of the reward of all honourable professions. In 
point of pecuniary gain, all things considered," their recompense is, 
in his opinion, below the average. " Disgrace has the contrary 
effect. The trade of a butcher is a brutal and an odious business ; 
but it is in most places more profitable than the greater part oi 
common trades. The most detestable of all employments, that of 
public executioner, is, in proportion to the quantity of work done, 
better paid than any common trade whatever." 

One of the causes which make handloom weavers cling [1848] to 
their occupation in spite of the scanty remuneration which it now 
yields, is said to be a pecuHar attractiveness arising from the freedom 
of action which it allows to the workman. " He can play or idle,'* 
says a recent authority ;* " as feeling or inclination lead him ; rise 
early or late, apply himself assiduously or carelessly, as he pleases, 
and work up at any time, by increased exertion, hours previously 
sacrificed to indulgence or recreation. There is scarcely another 
condition of any portion of our working population thus free from 
external control. The factory operative is not only mulcted of 
his wages for absence, but, if of frequent occurrence, discharged 
altogether from his employment. The bricklayer, the carpenter, the 
painter, the joiner, the stonemason, the outdoor labourer, have 
each their appointed daily hours of labour, a disregard of which 
would lead to the same result." Accordingly, " the weaver will stand 
by his loom while it will enable him to exist, however miserably ; 
and many, induced temporarily to quit it, have returned to it again, 
when work was to be had." 

" Employment is much more constant," continues Adam 

* Mr. Muggeridge's Report to the Handloom Weavers Inquiry Commission. 



DIFFERENCES OF WAGES 387 

Smith, " in some trades than in others. In the greater part of manu- 
factures, a journeyman may be pretty sure of employment almost 
every day in the year that he is able to work " (the interruptions 
of business arising from overstocked markets or from a suspension 
of demand, or from a commercial crisis, must be excepted). " A 
mason or bricklayer, on the contrary, can work neither in hard 
frost nor in foul weather, and his employment at all other times 
depends upon the occasional calls of his customers. He is liable, 
in consequence, to be frequently without any. What he earns, 
therefore, while he is employed, must not only maintain him while 
he is idle, but make him some compensation for those anxious and 
desponding moments which the thought of so precarious a situation 
must sometimes occasion. When the computed earnings of the 
greater part of manufacturers, accordingly, are nearly upon a level 
with the day wages of common labourers, those of masons and 
bricklayers are generally from one-half more to double those wages. 
No species of skilled labour, however, seems more easy to learn than 
that of masons and bricklayers. The high wages of those workmen, 
therefore, are not so much the recompense of their skill, as the 
compensation for the inconstancy of their employment. 

" When the inconstancy of the employment is combined with the 
hardship, disagreeableness, and dirtiness of the work, it sometimes 
raises the wages of the most common labour above those of the 
most skilled artificers. A coUier working by the piece is supposed, 
at Newcastle, to earn commonly about double, and in many parts 
of Scotland about three times, the wages of common labour. His 
high wages arise altogether from the hardship, disagreeableness, 
and dirtiness of his work. His employment may, upon most 
occasions, be as constant as he pleases. The coal-heavers in London 
exercise a trade which in hardship, dirtiness, and disagreeableness, 
almost equals that of colliers ; and from the unavoidable irregularity 
in the arrival of coal-ships, the employment of the greater part of 
them is necessarily very inconstant. If colliers, therefore, commonly 
earn double and triple the wages of common labour, it ought not 
to seem unreasonable that coal-heavers should sometimes earn. 
four or five times those wages. In the inquiry made into their 
condition a few years ago, it was found that at the rate at which 
they were then paid, they could earn about four times the wages of 
common labour in London. How extravagant soever these earnings 
may appear, if they were more than sufiicient to compensate all the 
disagreeable circumstances of the business, there would soon be so 



388 BOOK II. CHAPTER XIV. § I 

great a number of competitors as, in a trade which has no exclusive 
privilege, would quickly reduce them to a lower rate." 

These inequalities of remuneration, which are supposed to 
compensate for the disagreeable circumstances of particular employ- 
ments, would, under certain conditions, be natural consequences 
of perfectly free competition : and as between employments of 
about the same grade, and filled by nearly the same description of 
people, they are, no doubt, for the most part, realized in practice. 
But it IS altogether a false view of the state of facts, to present 
this as the relation which generally exists between agreeable and 
disagreeable employments. The really exhausting and the really 
repulsive labours, instead of being better paid than others, are 
almost invariably paid the worst of all, because performed by those 
who have no choice. It would be otherwise in a favourable state 
of the general labour market. If the labourers in the aggregate, 
instead of exceeding, fell short of the amount of employment, work 
which was generally disliked would not be undertaken, except for 
more than ordinary wages. But when the supply of labour so far 
exceeds the demand that to find employment at all is an uncertainty, 
and to be offered it on any terms a favour, the case is totally the 
reverse. Desirable labourers, those whom every one is anxious 
to have, can still exercise a choice. The undesirable must take 
what they can get. The more revolting the occupation, the more 
certain it is to receive the minimum of remuneration, because it 
devolves on the most helpless and degraded, on those who from 
squalid poverty, or from want of skill and education, are rejected 
from all other employments. Partly from this cause, and partly 
from the natural and artificial monopolies which will be spoken of 
presently, the inequalities of wages are generally in an opposite 
direction to the equitable principle of compensation erroneously 
represented by Adam Smith as the general law of the remuneration 
of labour. The hardships and the earnings, instead of being directly 
proportional, as in any just arrangements of society they would be, 
are generally in an inverse ratio to one another.* 

^ [This paragraph was inserted in the 3rd ed. (1852). At the same time the 
following paragraph disappeared from the preceding page : " There is no 
difficulty in understanding the operative principle in all these cases. If, with 
complete freedom of competition, labour of different degrees of desireablencss 
were paid alike, competitors would crowd into the more attractive employ- 
ments, and desert the less eligible, thus lowering wages in the first, and raising 
them in the second, until there would be such a difference of reward as to balance 
in common estimation the difference of eligibility. Under the unobstructed 
influence of competition, wages tend to adjust themselves in such a manner 



DIFFERENCES OF WAGES 389 

One of the points best illustrated by Adam Smith is the influence 
exercised on the remuneration of an employment by the uncertainty 
of success in it. If the chances are great of total failure, the reward 
in case of success must be sufficient to make up, in the general 
estimation, for those adverse chances. But, owing to another 
principle of human nature, if the reward comes in the shape of a 
few great prizes, it usually attracts competitors in such numbers, 
that the average remuneration may be reduced not only to zero, 
but even to a negative quantity. The success of lotteries proves 
that this is possible : since the aggregate body of adventurers in 
lotteries necessarily lose, otherwise the undertakers could not gain. 
The case of certain professions is considered by Adam Smith to be 
similar. " The probability that any particular person shall ever 
be qualified for the employment to which he is educated, is very 
different in different occupations. In the greater part of mechanic 
trades, success is almost certain, but very uncertain in the liberal 
professions. Put your son apprentice to a shoemaker, there is little 
doubt of his learning to make a pair of shoes ; but send him to study 
the law, it is at least twenty to one if ever he makes such proficiency 
as will enable him to Kve by the business. In a perfectly fair lottery 
those who draw the prizes ought to gain all that is lost by those who 
draw the blanks. In a profession where twenty fail for one that 
succeeds, that one ought to gain all that should have been gained by 
the unsuccessful twenty. The counsellor-at-law, who, perhaps, at 
near forty years of age, begins to make something by his profession, 
ought to receive the retribution, not only of his own so tedious and 
expensive education, but of that of more than twenty others who 
are never likely to make anything by it. How extravagant soever 
the fees of counseilors-at-law may sometimes appear, their real 
retribution is never equal to this. Compute, in any particular place, 
what is likely to be annually gained, and what is likely to be 
annually spent, by all the different workmen in any common trade, 
such at that of shoemakers or weavers, and you will find that the 
former sum will generally exceed the latter. But make the same 
computation with regard to all the counsellors and students of law, 
in all the different inns of court, and you will find that their annual 
gains bear but a small proportion to their annual expense, even 
though you rate the former as high, and the latter as low, as can 
well be done." 

that the situation and prospects of the labourers in all employments shall be, 
in the general estimation, as nearly as possible on a par."] 



390 BOOK II. CHAPTER KIV. § 2 

Whether this is true in our own day, when the gains of the few 
are incomparably greater than in the time of Adam Smith, but also 
the unsuccessful aspirants much more numerous, those who have 
the appropriate information must decide. It does not, however, 
seem to be sufficiently considered by Adam Smith, that the prizes 
which he speaks of comprise not the fees of counsel only, but the 
places of emolument and honour to which their profession gives 
access, together with the coveted distinction of a conspicuous 
position in the public eye. 

Even where there are no great prizes, the mere love of excitement 
is sometimes enough to cause an adventurous employment to be 
overstocked. This is apparent " in the readiness of the common 
people to enlist as soldiers, or to go to sea. . . . The dangers and 
hair-breadth escapes of a life of adventures, instead of disheartening 
young people, seem frequently to recommend a trade to them. 
A tender mother, among the inferior ranks of people, is often 
afraid to send her son to school at a seaport town, lest the sight of 
the ships and the conversation and adventures of the sailors should 
entice him to go to sea. The distant prospect of hazards from 
which we can hope to extricate ourselves by courage and address, 
is not disagreeable to us, and does not raise the wages of labour in 
any employment. It is otherwise with those in which courage and 
address can be of no avail. In trades which are known to be very 
unwholesome, the wages of labour are always remarkably high. 
Unwholesomeness is a species of disagreeableness, and its efiect upon 
the wages of labour are to be ranked under that general head," 

§ 2. The preceding are cases in which inequahty of remuneration 
is necessary to produce equality of attractiveness, and are examples 
of the equalizing effect of free competition. The following are 
cases of real inequality, and arise from a different principle. " The 
wages of labour vary according to the small or great trust which 
must be reposed in the workmen. The wages of goldsmiths and 
jewellers are everywhere superior to those of many other workmen, 
not only of equal, but of much superior ingenuity ; on account of 
the precious materials with which they are intrusted. We trust our 
health to the physician, our fortune and sometimes our life and 
reputation to the lawyer and attorney. Such confidence could 
not safely be reposed in people of a very mean or low condition. 
Their reward must be such, therefore, as may give them that rank in 
society which so important a trust requires." 



DIFFERENCES OF WAGES 391 

The superiority of reward is not here the consequence of com- 
petition, but of its absence : not a compensation for disadvantages 
inhei-ent in the employment, but an extra advantage ; a kind of 
monopoly price, the effect not of a legal, but of what has been termed 
a natural monopoly. If all labourers were trustworthy, it would 
not be necessary to give extra pay to working goldsmiths on account 
of the trust. The degree of integrity required being supposed 
to be uncommon, those who can make it appear that they possess 
it are able to take advantage of the peculiarity, and obtain higher 
pay in proportion to its rarity. This opens a class of considerations 
which Adam Smith, and most other pohtical economists, have taken 
into far too httle account^ and from inattention to which, he has 
given a most imperfect exposition of the wide difference between 
the remuneration of common labour and that of skilled employments. 

Some employments require a much longer time to learn, and a 
much more expensive course of instruction than others ; and to this 
extent there is, as explained by Adam Smith, an inherent reason 
for their being more highly remunerated. If an artizan must work 
several years at learning his trade before he can earn anything, and 
several years more before becoming sufficiently skilful for its finer 
operations, he must have a prospect of at last earning enough to 
pay the wages of ail this past labour, with compensation for the 
delay of payment, and an indemnity for the expenses of his education. 
His wages, consequently, must yield, over and above the ordinary 
amount, an annuity sufficient to repay these sums, with the common 
rate of profit, within the number of years he can expect to Jive 
and to be in working condition. This, which is necessary to place 
the skilled employments, all circumstances taken together, on the 
same level of advantage with the unskilled, is the smallest difference 
which can exist for any length of time between the two remunerations, 
since otherwise no one would learn the sldlled employments. And 
this amount of difference is all which Adam Smith's principles 
account for. When the disparity is greater, he seems to think that 
it must be explained by apprentice laws, and the rules of corporations 
which restrict admission into many of the skilled employments. 
But, independently of these or any other artificial monopoHes, there 
is a natural monopoly in favour of skilled labourers against the 
unskilled, which makes the difference of reward exceed, sometimes 
in a manifold proportion, what is sufficient merely to equaHze 
their advantages. If unskilled labourers had it in their power to 
compete with skilled, by merely taking the trouble of learning the 



392 BOOR II. CHAPTER XIV. § 2 

trade, the difference of wages might not exceed what would com- 
pensate them for that trouble, at the ordinary rate at which labour 
is remunerated. But the fact that a course of instruction is required, 
of even a low degree of costHness, or that the labourer must be 
maintained for a considerable time from other sources, suffices 
everywhere to exclude the great body of the labouring people 
from the possibility of any such competition. Until lately. ^ all 
employments which required even the humble education of reading 
and writing, could be recruited only from a select class, the majority 
having had no opportunity of acquiring those attainments. All 
such improvements, accordingly, were immensely overpaid, as 
measured by the ordinary remuneration of labour. Since reading 
and writing have been brought within the reach of a multitude, 
the monopoly price of the lower grade of educated employments 
has greatly fallen, the competition for them having increased in 
an almost incredible degree. There is still, however, a much 
greater disparity than can be accounted for on the principle of 
competition. A clerk from whom nothing is required but the 
mechanical labour of copying, gains more than an equivalent for 
his mere exertion if he receives the wages of a bricklayer's labourer. 
His work is not a tenth part as hard, it is quite as easy to learn, 
and his condition is less precarious, a clerk's place being generally 
a place for life. The higher rate of his remuneration, therefore, 
must be partly ascribed to monopoly, the small degree of education 
required being not even yet so generally diffused as to call forth 
the natural number of competitors ; and partly to the remaining 
influence of an ancient custom, which requires that clerks should 
maintain the dress and appearance of a more highly paid class. 
In some manual employments, requiring a nicety of hand which 
can only be acquired by long practice, it is difficult to obtain at any 
cost workmen in sufficient numbers, who are capable of the most, 
dehcate kind of work ; and the wages paid to them are only hmited 
by the price which purchasers are willing to give for the commodity 
they produce. This is the case with some working watchmakers, 
and with the makers of some astronomical and optical instruments. 
If workmen competent to such employments were ten times as 
numerous as they are, there would be purchasers for all which they 
could make, not indeed at the present prices, but at those lower 
prices which would be the natural consequence of lower wages. 
Similar considerations apply in a still greater degree to employments 

1 [Writing in 1848.] 



DIFFERENCES OF WAGES 393 

wluch it is attempted to confine to persons of a certain social rank, 
such as what are called the hberal professions ; into which a persop 
of what is considered too low a class of society is not easily 
admitted, and if admitted, does not easily succeed. 

So complete, indeed, has hitherto been the separation, so strongly 
marked the Hne of demarcation, between the different grades of 
labourers, as to be almost equivalent to an hereditary distinction of 
caste ; each employment being chiefly recruited from the children 
of those already employed in it, or in employments of the same 
rank with it in social estimation, or from the children of persons who, 
if originally of a lower rank, have succeeded in raising themselves 
by their exertions. The liberal professions are mostly suppHed by 
the sons of either the professional, or the idle classes : the more 
highly skilled manual employments are filled up from the sons of 
skilled artizans, or the class of tradesmen who rank with them : the 
lower classes of skilled employments are in a similar case ; and 
unskilled labourers, with occasional exceptions, remain from father to 
son in their pristine condition. Consequently the wages of each 
class have hitherto been regulated by the increase of its own popula- 
tion, rather than of the general population of the country. If the 
professions are overstocked, it is because the class of society from 
which they have always mainly been supplied, has greatly increased 
in number, and because most of that class have numerous families, 
and bring up some at least of their sons to professions. If the 
wages of artizans remain so much higher than those of common 
labourers, it is because artizans are a more prudent class, and do 
not marry so early or so inconsiderately. The changes, however, 
now so rapidly taking place in usages and ideas, are undermining 
all these distinctions ; the habits or disabiUties which chained 
people to their hereditary condition are fast wearing away, and every 
class is exposed to increased and increasing competition from at 
least the class immediately below it. The general relaxation of 
conventional barriers, and the increased facilities of education 
which already are, and will be in a much greater degree, brought 
within the reach of all, tend to produce, among many excellent 
effects, one which is the reverse ; they tend to bring down the wages 
of skilled labour. The inequahty of remuneration between the 
skilled and the unskilled is, without doubt, very much greater than 
is justifiable ; but it is desirable that this should be corrected by 
raising the unskilled, not by lowering the skilled. If, however, the 
other changes taking place in society are not accompanied by a 



394 BOOR II. CHAPTER XIV. § 3 

strengthening of tlie checks to population on the part of labourers 
generally, there will be a tendency to bring the lower grades of 
skilled labourers under the influence of a rate of increase regulated 
by a lower standard of li%dng than their own, and thus to deteriorate 
their condition without raising that of the general mass ; the stimulus 
given to the multiplication of the lowest class being sufficient to fill 
up without difficulty the additional space gained by them from those 
immediately above. 

§ 3. A modifying circumstance still remains to be noticed, 
which interferes to some extent with the operation of the principles 
thus far brought to view. While it is true, as a general rule, that 
the earnings of skilled labour, and especially of any labour which 
requires school education, are at a monopoly rate, from the im- 
possibility, to the mass of the people, of obtaining that education ; 
it is also true that the policy of nations, or the bounty of individuals, 
formerly did much to counteract the effect of this limitation of 
competition, by ofiering eleemosynary instruction to a much larger 
class of persons than could have obtained the same advantages by 
paying their price. Adam Smith has pointed out the operation of 
this cause in keeping down the remuneration of scholarly or bookish 
occupations generally, and in particular of clergymen, literary men, 
and schoolmasters, or other teachers of youth. I cannot better set 
forth this part of the subject than in his words. 

" It has been considered as of so much importance that a proper 
number of young people should be educated for certain professions, 
that sometimes the public, and sometimes the piety of private 
founders, have estabHshed many pensions, scholarships, exhibitions, 
bursaries, &c. for this purpose, which draw many more people into 
those trades than could otherwise pretend to follow them. In all 
Christian countries, I believe, the education of the greater part of 
churchmen is paid for in this manner. Very few of them are 
educated altogether at their own expense. The long, tedious, and 
expensive education, therefore, of those who are, will not always 
procure them a suitable reward, the Church being crowded with 
people who, in order to get employment, are willing to accept of a 
much smaller recompense than what such an education would 
otherwise have entitled them to : and in this manner the com- 
petition of the poor takes away the reward of the rich. It would be 
indecent, no doubt, to compare either a curate or a chaplain with 
a journeyman in any common trade. The pay of a curate or a 



DIFFERENCES OF WAGES 395 

chaplain, however, may very properly be considered as of the same 
nature with the wages of a journeyman. They are. all three, paid 
for their work according to the contract which they may happen to 
make with their respective superiors. Till after the middle of the 
fourteenth century, five marks, containing as much silver as ten 
pounds of our present money, was in England the usual pay of a 
curate or a stipendiary parish priest, as we find it regulated by the 
decrees of several different national councils. At the same period 
fourpence a day, containing the same quantity of silver as a shilling 
of our present money, was declared to be the pay of a master-mason, 
and threepence a day, equal to ninepence of our present money, 
that of a journeyman mason,* The wages of both these labourers, 
therefore, supposing them to have been constantly employed, were 
much superior to those of the curate. The wages of the master- 
mason, supposing him to have been without employment one-third 
of the year, would have fully equalled them. By the 12th of Queen 
Anne, c. 12, it is declared, * That whereas for want of sufiicient 
maintenance and encouragement to curates, the cures have in 
several places been meanly suppHed, the bishop is therefore em- 
powered to appoint by writing under his hand and seal a sufficient 
certain stipend or allowance, not exceeding fifty, and not less than 
twenty pounds a year.' Forty pounds a year is reckoned at present 
very good pay for a curate, and notwithstanding this act of parHa- 
ment, there are many curacies under twenty pounds a year. This 
last sum does not exceed what is frequently earned by common 
labourers in many country parishes. Whenever the law has 
attempted to regulate the wages of workmen, it has always been 
rather to lower them than to raise them. But the law has upon 
many occasions attempted to raise the wages of curates, and for the 
dignity of the Church, to obHge the rectors of parishes to give them 
more than the wretched maintenance which they themselves might 
be willing to accept of. Ajid in both cases the law seems to have 
been equally inefiectual, and has never been either able to raise the 
wages of curates or to sink those of labourers to the degree that was 
intended, because it has never been able to hinder either the one 
from being willing to accept of less than the legal allowance, on 
account of the indigence, of their situation and the multitude of 
their competitors ; or the other from receiving more, on account of 
the contrary competition of those who expected to derive either 
profit or pleasure from employing them." 

* See the Statute of Labourera, 25 Edw. IIL 



396 BOOK II. CHAPTER XIV. § 3 

" In professions in which there are no benefices, such as law (?) 
and physic, if an equal proportion of people were educated at the 
public expense, the competition would soon be so great as to sink 
very much their pecuniary reward. It might then not be Worth 
any man's while to educate his son to either of those professions at 
his own expense. They would be entirely abandoned to such as 
had been educated by those public charities ; whose numbers and 
necessities would oblige them in general to content themselves with 
a very miserable recompense. 

" That unprosperous race of men, commonly called men of 
letters, are pretty much in the situation which lawyers and physicians 
probably would be in upon the foregoing supposition. In every 
part of Europe, the greater part of them have been educated for the 
Church, but have been hindered by different reasons from entering 
into holy orders. They have generally, therefore, been educated 
at the pubhc expense, and their numbers are. everywhere so 
great as to reduce the price of their labour to a very paltry 
recompense. 

" Before the invention of the art of printing, the only employ- 
ment by which a man of letters could make anything by his talents, 
was that of a public or private teacher, or by communicating to 
other people the curious and useful knowledge which he had acquired 
himself : and this is still surely a more honourable, a more useful, 
and in general even a more profitable employment than that other 
of writing for a bookseller, to which the art of printing has given 
occasion. The time and study, the genius, knowledge, and applica- 
tion requisite to quaUfy an eminent teacher of the sciences, are at 
least equal to what is necessary for the greatest practitioners in 
law and physic. But the usual reward of the eminent teacher 
bears no proportion to that of the lawyer or physician ; because the 
trade of the one is crowded with indigent people who have been 
brought up to it at the pubHc expense, whereas those of the other 
two are encumbered with very few who have not been educated at 
their own. The usual recompense, however, of public and private 
teachers, small as it may appear, would undoubtedly be less than 
it is, if the competition of those yet more indigent men of letters who 
write for bread was not taken out of the market. Before the in- 
vention of the art of printing, a scholar and a beggar seem to have 
been terms very nearly synonymous. The different governors of 
the universities before that time appear to have often granted 
licences to their scholars to beg," 



DIFFERENCES OF WAGES 397 

§ 4. The demand for literary labour has so greatly increased since 
Adam Smith wrote, while the provisions for eleemosynary educa- 
tion have nowhere been much added to, and in the countries which 
have undergone revolutions have been much diminished, that little 
effect in keeping down the recompense of literary labour can now 
be ascribed to the influence of those institutions. But an effect 
nearly equivalent is now produced by a cause somewhat similar — 
the competition of persons who, by analogy with other arts, may be 
called amateurs. Literary occupation is one of those pursuits in 
which success may be attained by persons the greater part of whose 
time is taken up by other employments ; and the education 
necessary for it is the common education of all cultivated persons. 
The inducements to it, independently of money, in the present state 
of the world, to all who have either vanity to gratify, or personal or 
public objects to promote, are strong. These motives now attract 
into this career a great and increasing number of persons who do not 
need its pecuniary fruits, and who would equally resort to it if it 
afforded no remuneration at all. In our own country (to cite known 
examples), the most influential, and on the whole most eminent 
philosophical writer of recent times (Bentham), the greatest 
political economist (Ricardo), the most ephemerally celebrated, 
and the really greatest poets (Byron and Shelley), and the most 
successful writer of prose fiction (Scott), were none of them authors 
by profession ; and only two of the five, Scott and Byron, could have 
supported themselves by the works which they wrote. Nearly all 
the higher departments of authorship are, to a great extent, similarly 
filled. In consequence, although the highest pecuniary prizes of 
successful authorship are incomparably greater than at any former 
period, yet on any rational calculation of the chances, in the exist- 
ing competition, scarcely any writer can hope to gain a living by 
books, and to do so by magazines and reviews becomes [1848] daily 
more difficult. It is only the more troublesome and disagreeable 
kinds of literary labour, and those which confer no personal celebrity, 
such as most of those connected vdth. newspapers, or with the smaller 
periodicals, on which an educated person can now rely for subsistence. 
Of these, the remuneration is, on the whole, decidedly high ; because, 
though exposed to the competition of what used to be called " poor 
scholars " (persons who have received a learned education from 
some pubhc or private charity), they are exempt from that of 
amateurs, those who have other means of support being seldom 
candidates for such employments. Whether these considerations 



398 BOOK IL CHAPTER XIV. § 4 

are not connected with sometliing radically amiss in tlie idea of 
authorsMp as a profession, and whether any social arrangement 
under which the teachers of mankind consist of persons giving out 
doctrines for bread, is suited to be, or can possibly be, a permanent 
thing — would be a subject well worthy of the attention of thinkers. 

The clerical, Kke the literary profession, is frequently adopted 
by persons of independent means, either from rehgious zeal, or for 
the sake of the honour or usefulness which may belong to it, or 
for a chance of the high prizes which it holds out : and it is now prin- 
cipally for this reason that the salaries of curates are so low ; those 
salaries, though considerably raised by the influence of public 
opinion, being still generally insuflicient as the sole means of support 
for one who has to maintain the externals expected from a clergyman 
of the estabUshed church. 

When an occupation is carried on chiefly by persons who derive 
the main portion of their subsistence from other sources, its remunera- 
tion may be lower almost to any extent than the wages of equally 
severe labour in other employments. The principal example of 
the kind is domestic manufactures. When spinning and knitting 
were carried on in every cottage, by families deriving their principal 
support from agriculture, the price at which their produce was sold 
(which constituted the remuneration of the labour) was often so 
low, that there would have been required great perfection of 
machinery to undersell it. The amount of the remuneration in 
such a case depends chiefly upon whether the quantity of the 
commodity, produced by this description of labour, suffices to supply 
the whole of the demand. If it does not, and there is consequently 
a necessity for some labourers who devote themselves entirely to 
the employment, the price of the article must be sufficient to pay 
those labourers at the ordinary rate, and to reward therefore very 
handsomely the domestic producers. But if the demand is so 
limited that the domestic manufacture can do more than satisfy it, 
the price is naturally kept down to the lowest rate at which peasant 
families think it worth while to continue the production. It is, no 
doubt, because the Swiss artizans do not depend for the whole of 
their subsistence upon their looms, that Zurich is able to maintain 
a competition in the European market with Enghsh capital, and 
EngHsh fuel and machinery.* Thus far, as to the remuneration of 

* Four-fifths of the manufacturers of the Canton of Zurich are small 
farmers, generally proprietors of their farms. The cotton manufacture occu- 
pies either wholly or partially 23,000 people, nearly a tenth part of the popu- 



DIFFERENCES OF WAGES 399 

the subsidiary employment ; but the effect to the labourers of 
having this additional resource, is almost certain to be (unless 
pecuHar counteracting causes intervene) a proportional diminution 
of the wages of their main occupation. The habits of the people 
(as has already been so often remarked) everywhere require some 
particular scale of hving, and no more, as the condition without 
which they will not bring up a family. Whether the income which 
maintains them in this condition comes from one source or from two, 
makes no difference : if there is a second source of income, they 
require less from the first ; and multiply (at least this has always 
hitherto been the case) to a point which leaves them no more from 
both employments, than they would probably have had from either 
if it had been their sole occupation. 

For the same reason it is found that, cceteris 'paribus, those trades 
are generally the worst paid, in which the wife and children of the 
artizan aid in the work. The income which the habits of the class 
demand, and down to which they are almost sure to multiply, is 
made up, in those trades, by the earnings of the whole family, while 
in others the same income must be attained by the labour of the 
man alone. It is even probable that their collective earnings will 
amount to a smaller sum than those of the man alone in other 
trades ; because the prudential restraint on marriage is unusually 
weak when the only consequence immediately felt is an improve- 
ment of circumstances, the joint earnings of the two going further in 
their domestic economy after marriage than before. Such accord- 
ingly is the fact, in the case of handloom weavers. In most kinds of 
weaving, women can and do earn as much as men, and children are 
employed at a very early age ; but the aggregate earnings of a 
family are lower than in almost any other kind of industry, and the 
marriages earher. It is noticeable also that there are certain 
branches of handloom weaving in which wages are much above the 
rate common in the trade, and that these are the branches in which 
neither women nor young persons are employed. These facts were 
authenticated by the inquiries of the Handloom Weavers Com- 
mission, which made its report in 1841. ^No argument can be 
hence derived for the exclusion of women from the hberty of 
competing in the labour market : since, even when no more is earned 

lation, and they consume a greater quantity of cotton per inhabitant than 
either France or England. See the Statistical Account of Zurich formerly 
cited, pp. 105, 108, 110. 

^ [The first and third of the following sentences were added in the 3rd ed. 
(1852) ; the second was inserted in the 6th ed. (1865).] 



400 BOOK 11. CHAPTER XIV. § 5 

by the labour of a man and a woman than would have been earned 
by the man alone, the advantage to the woman of not depending on 
a master for subsistence may be more than an equivalent. It cannot, 
however, be considered desirable as a permanent element in the 
condition of a labouring class, that the mother of the family (the case 
of a single woman is totally different) should be under the necessity 
of working for subsistence, at least elsewhere than in their place of 
abode. In the case of children, who are necessarily dependent, the 
influence of their competition in depressing the labour market is an 
important element in the question of Hmiting their labour, in order 
to provide better for their education. 

§ 5. It deserves consideration, why the wages of women are 
generally lower, and very much lower, than those of men. They 
are not universally so. Where men and women work at the same 
employment, if it be one for which they are equally fitted in point 
of physical power, they are not always unequally paid.i Women, 
in factories, sometimes ^ earn as much as men ; and so they do in 
handloom weaving, which, being paid by the piece, brings their 
efficiency to a sure test. When the efficiency is equal, but the pay 
unequal, the only explanation that can be given is custom ; grounded 
either in a prejudice, or in the present constitution of society, 
which, making almost every woman, socially speaking, an appendage 
of some man, enables men to take systematically the Hon's share of 
whatever belongs to both.^ But the principal question relates to 
the peculiar employments of women. The remuneration of these 
is always, I believe, greatly below that of employments of equal 
skill and equal disagreeableness, carried on by men. In some of 
these cases the explanation is evidently that already given : as in 
the case of domestic servants, whose wages, speaking generally, 
are not determined by competition, but are greatly in excess of the 
market value of the labour, and in this excess, as in almost all things 
which are regulated by custom, the male sex obtains by far the 
largest share. In the occupations in which employers take full 

1 [So from the 3rd ed. (1852). The original text ran : " it does not appear 
that they are in general unequally paid."] 

2 [" Sometimes " added in the 3rd ed.] 

^ [Here the following passage was omitted from the 3rd ed. : " When an 
employment (as is the case with many trades) is divided into several parts, of 
some of which men alone are considered capable, while women or children are 
employed in the others, it is natural that those who cannot be dispensed with, 
should be able to make better terms for themselves than those who can."] 



DIFFERENCES OF WAGES 401 

advantage of competition, the low wages of women as compared witli 
the ordinary earnings of men are a proof that the employments are 
overstocked : that although so much smaller a number of women, 
than of men, support themselves by wages, the occupations which 
law and usage make accessible to them are comparatively so few, 
that the field of their employment is still more overcrowded. It 
must be observed, that as matters now stand, a sufficient degree 
of overcrowding may depress the wages of women to a much lower 
minimum than those of men. The wages, at least of single women, 
must be equal to their support, but need not be more than equal 
to it ; the minimum, in their case, is the pittance absolutely requi- 
site for the sustenance of one human being. Now the lowest point 
to which the most superabundant competition can permanently 
depress the wages of a man is always somewhat more than this. 
Where the wife of a labouring man does not by general custom 
contribute to his earnings, the man's wages must be at least sufficient 
to support himself, a wife, and a number of children adequate to keep 
up the population, since if it were less the population would not be 
kept up. And even if the wife earns something, their joint wages 
must be sufficient not only to support themselves, but (at least 
for some years) their children also. The ne plus ultra of low 
wages, therefore (except during some transitory crisis, or in some 
decaying employment), can hardly occur in any occupation which 
the person employed has to live by, except the occupations of 
women. 

§ 6. Thus far, we have, throughout this discussion, proceeded 
on the supposition that competition is free, so far as regards human 
interference ; being limited only by natural causes, or by the 
unintended effect of general social circumstances. But law or custom 
may interfere to Hmit competition. If apprentice laws, or the 
regulations of corporate bodies, make the access to a particular 
employment slow, costly, or difficult, the wages of that employment 
may be kept much above their natural proportion to the wages of 
common labour. They might be so kept without any assignable 
hmit, were it not that wages which exceed the usual rate require 
corresponding prices, and that there is a limit to the price at which 
even a restricted number of producers can dispose of all they produce. 
In most civiUzed countries, the restrictions of this kind which once 
existed have been either aboHshed or very much relaxed, and will, 
no doubt, soon disappear entirely. In some trades, however, and 



402 BOOK II. CHAPTER XIV. § 6 

to some extent, the combinations of workmen produce a similar 
effect. Those combinations always fail to uphold wages at an 
artificial rate, unless they also limit the number of competitors. 
But they do occasionally succeed in accomplishing this. In several 
trades the workmen have been able to make it almost impractic- 
able for strangers to obtain admission either as journeymen or 
as apprentices, except in limited numbers, and under such re- 
strictions as they choose to impose. It was given in evidence to 
the Handloom Weavers Commission, that this is one of the hard- 
ships which aggravate the grievous condition of that depressed 
class. Their own employment is overstocked and almost ruined ; 
but .there are many other trades which it would not be difficult for 
them to learn : to this, however, the combinations of workmen 
in those other trades are said to interpose an obstacle hitherto 
insurmountable. 

Notwithstanding, however, the cruel manner in which the 
exclusive principle of these combinations operates in a case of 
this peculiar nature, the question, whether they are on the whole 
more useful or mischievous, requires to be decided on an enlarged 
consideration of consequences, among which such a fact as this is 
not one of the most important items. Putting aside the atrocities 
sometimes committed by workmen in the way of personal outrage 
or intimidation, which cannot be too rigidly repressed ; if the 
present state of the general habits of the people were to remain 
for ever unimproved, these partial combinations, in so far as they do 
succeed in keeping up the wages of any trade by limiting its numbers, 
might be looked upon as simply intrenching around a particular 
spot against the inroads of over-population, and making the wages 
of the class depend upon their own rate of increase, instead of depend- 
ing on that of a more reckless and improvident class than themselveso 
What at first sight seems the injustice of excluding the more 
numerous body from sharing the gains of a comparatively few, 
disappears when we consider that by being admitted they would 
not be made better off, for more than a short time ; the only 
permanent effect which their admission would produce, would 
be to lower the others to their own level. To what extent 
the force of this consideration is annulled when a tendency 
commences towards diminished over-crowding in the labour- 
ing classes generally, and what grounds of a different nature 
there may be for regarding the existence of trade combinations 
as rather to be desired than deprecated, will be considered in 



DIFFERENCES OF WAGES 403 

a subsequent cKapter of this work with the subject of Combination 
Laws.^ 

§ 7. To conclude this subject, I must repeat an observation 
akeady made, that there are kinds of labour of which the wages are 
fixed by custom, and not by competition. Such are the fees or 

^ [The present text of this paragraph dates from the 5th ed. (1862). In the 
original of 1848 it ran, after the words " this pecuHar nature " : "I find it 
impossible to wish, in the present state of the general^habits of the people, that 
no such combinations existed. Acts of atrocity are sometimes committed by 
them, in the way . . . repressed : and even their legitimate liberty of refusing 
to work unless their own terms are conceded to them, they not unfrequently 
exercise in an injudicious, unenlightened manner, ultimately very injurious to 
themselves. But in so far as they do succeed in keeping up the wages of any 
trade by limiting its numbers, I look upon them as simply intrenching . . . 
themselves. And I should rejoice if by trade regulations, or even by trades 
unions, the employments thus specially protected could be multiplied to a much 
greater extent than experience has shown to be practicable. What at first 
sight seems the injustice . . . level. If indeed the general mass of the people 
were so improved in their standard of living, as not to press closer against the 
means of employment than those trades do ; if , in other words, there were no 
greater degree of overcrowding outside the barrier, than within it — there would 
be no need of a barrier, and if it had any effects at all, they must be bad ones ; 
but in that case the barrier would fall of itself, since there would no longer be 
any motive for keeping it up. On similar grounds, if there were no other escape 
from that fatal immigration of Irish, which has done and is doing so much to 
degrade the condition of our agricultural, and some classes of our town popula- 
tion, I should see no injustice, and the greatest possible expediency, in checking 
that destructive inroad by prohibitive laws. But there is a better mode of 
putting an end to this mischief, namely, by improving the condition of the 
Irish themselves ; and England owes an atonement to Ireland for past injuries, 
which she ought to suffer almost any inconvenience rather than fail to make 
good, by using her power in as determined a manner for the elevation of that 
unfortunate people, as she used it through so many dreary centuries for their 
abasement and oppression." 

In the 3rd ed. (1852) this was replaced by the following (which appeared also 
in the 4th (1857) ) : " their existence, it is probable, has, in time past, produced 
more good than eviL Putting aside the atrocities sometimes committed by 
them, in the way . . . themselves. The time, however, is past when the 
friends of human improvement can look with complacency on the attempts of 
small sections of the community, whether belonging to the labouring or any 
other class, to organize a separate class interest in antagonism to the general 
body of labourers, and to protect that interest by shutting out, even if only by 
a moral compulsion, all competitors from their more highly paid department. 
The mass of the people are no longer to be thrown out of the account, as too 
hopelessly brutal to be capable of benefiting themselves by any opening made 
for them, and sure only, if admitted into competition, to lower others to their 
own^level. The aim of all efforts should now be, not to keep up the monopoly 
of separate knots of labourers against the rest, but to raise the moral state and 
social condition of the whole body ; and of this it is an indispensable part that 
no one should be excluded from the superior advantages of any skilled 
employment, who has intelligence enough to learn it, and honesty enough to be 
entrusted with it."] 



404 BOOK II. CHAPTER XIV. § 7 

charges of professional persons : of physicians, surgeons, barristers, 
and even attorneys. These, as a general rule, do not vary, and 
though competition operates upon those classes as much as upon 
any others, it is by dividing the business, not, in general, by diminish- 
ing the rate at which it is paid. The cause of this, perhaps, has been 
the prevalence of an opinion that such persons are more trustworthy 
if paid highly in proportion to the work they perform ; insomuch that 
if a lawyer or a physician offered his services at less than the ordinary 
rate, instead of gaining more practice, he would probably lose that 
which he already had. For analogous reasons it is usual to pay 
greatly beyond the market price of their labour all persons in 
whom the employer wishes to place peculiar trust, or from whom 
he requires something besides their mere services. For example, 
most persons who can afford it pay to their domestic servants 
higher wages than would purchase in the market the labour of 
persons fully as competent to the work required. They do this, not 
merely from ostentation, but also from more reasonable motives : 
either because they desire that those they employ should serve 
them cheerfully, and be anxious to remain in their service ; or 
because they do not Kke to drive a hard bargain with people whom 
they are in constant' intercourse with ; or because they disHke to 
have near their persons, and continually in their sight, people with 
the appearance and habits which are the usual accompaniments 
of a mean remuneration. Similar feeUngs operate in the minds of 
persons in business, with respect to their clerks, and other employes. 
Liberality, generosity, and the credit of the employer, are motives 
which, to whatever extent they operate, preclude taking the utmost 
advantage of competition : and doubtless such motives might, and 
even now do, operate on employers of labour in all the great 
departments of industry ; and most desirable is it that they should. 
But they can never raise the average wages of labour beyond the 
ratio of population to capital. By giving more to each person 
employed, they limit the power of giving employment to numbers ; 
and however excellent their moral effect, they do little good economi- 
cally, unless the pauperism of those who are shut out leads indirectly 
to a readjustment by means of an increased restraint on population. 



CHAPTER XV 

OF PROFITS 

§ 1. Having treated of tte labourer's stare of the produce, we 
next proceed~to' tlie share of the capitalist ; the profits of capital 
oFTtock ; the gains of the person who advances the expenses of 
production — who, from funds in his possession, pays the wages of 
the labourers, or supports them during the work ; who supplies the 
requisite buildings, materials, and tools or machinery ; and to 
whom, by the usual terms of the contract, the produce belongs, 
to be disposed of at his pleasure. After indemnifying him for his 
outlay, there commonly remains a surplus, which is his profit ; 
the net income from his capital : the amount which he can aflord 
to spend in necessaries or pleasures, or from which by further 
saving he can add to his wealth. 

As the wages of the labourer are the remuneration of labour, so 
the profits of the capitahst are properly, according to Mr. Senior's 
well-chosen expression, the remuneration of abstinence. They are 
what he gains by forbearing to consume his capital for his own uses, 
and allowing it to be consumed by productive labourers for their 
uses. For this forbearance he requires a recompense. Very often 
in personal enjoyment he would be a gainer by squandering his 
capital; the capital amounting to more than the sum of the profits 
which it will yield during the years he can expect to five. But 
while he retains it undiminished, he has always the power of con- 
suming it if he wishes or needs ; he can bestow it upon others at his 
death ; and in the meantime he derives from it an income, which 
he can without impoverishment apply to the satisfaction of his own 
wants or incHnations. 

Of the gains, however, which the possession of a capital enables 
a person to make, a part only is properly an equivalent for the use 
of the capital itself ; namely, as much as a solvent person would 
be willing to pay for the loan of it. This, which as everybody 



406 BOOK II. CHAPTER XV. § 1 

knows is called interest, is all that a person is enabled to get by 
merely abstaining from the immediate consumption of his capital, 
and allowing it to be used for productive purposes by others. The 
remuneration which is obtained in any country for mere abstinence, 
is measured by the current rate of interest on the best security : 
such security as precludes any appreciable chance of losing the 
principal. What a person expects to gain, who superintends the 
employment of his own capital, is always more, and generally 
much more, than this. The rate of profit greatly exceeds the rate 
of interest. The surplus is partly compensation for risk. By 
lending his capital, on unexceptionable security, he runs Httle or 
no risk. But if he embarks in business on his own account, he 
always exposes his capital to some, and in many cases to very great, 
danger of partial or total loss. For this danger he must be com- 
pensated, otherwise he will not incur it. He must Hkewise be 
remunerated for the devotion of his time and labour. The control 
of the operations of industry usually belongs to the person who 
supplies the whole or the greatest part of the funds by which they 
are carried on, and who, according to the ordinary arrangement, is 
either alone interested, or is the person most interested (at least 
directly), in the result. To exercise this control with efficiency, if the 
concern is large and compHcated, requires great assiduity, and often, 
no ordinary skill. This assiduity and skill must be remunerated. 

The gross profits from capital, the gains returned to those who 
supply the funds for production, must suffice for these three purposes. 
They must afford a sufficient equivalent for abstinence, indemnity 
for risk, and remuneration for the labour and skill required for 
superintendence. These different compensations may be either 
paid to the same, or to different persons. The capital, or some part 
of it, may be borrowed : may belong to some one who does not 
undertake the risks or the trouble of business. In that case, the 
lender or owner is the person who practises the abstinence ; and 
is remunerated for it by the interest paid to him, while the difference 
between the interest and the gross profits remunerates the exertions 
and risks of the undertaker.* Sometimes, again, the capital, or 
a part of it, is supplied by what is called a sleeping partner ; 
who shares the risks of the employment, but not the trouble, and 

who, in consideration of those risks, receives not a mere interest, 

^^ 

* It is to be regretted that this word, in this sense, is not familiar to an 
English ear. French political economists enjoy ^a great advantage in being 
able to speak currently of les profits de V entrepreneur. 



PROFITS 407 

but a stipulated stare of the gross profits. Sometimes the capital 
is supplied and the risk incurred by one person, and the business 
carried on exclusively in his name, while the trouble of management 
is made over to another, who is engaged for that purpose at a fixed 
salary. Management, however, by hired servants, who have no 
interest in the result but that of preserving their salaries, is pro- 
verbially inefiicient, unless they act under the inspecting eye, if not 
the controlling hand, of the person chiefly interested : and prudence 
almost always recommends giving to a manager not thus controlled 
a remuneration partly dependent on the profits ; which virtually 
reduces the case to that of a sleeping partner. Or finally, the same 
person may own the capital, and conduct the business ; adding, 
if he will and can, to the management of his own capital, that of 
as much more as the owners may be wilhng to trust him with. But 
under any or all of these arrangements, the same three things 
require their remuneration, and must obtain it from the gross profit : 
abstinence, risk, exertion. And the three parts into which profit 
may be considered as resolving itself, may be described respectively 
as interest, insurance, and wages of superintendence. 

§ 2. The lowest rate of profit which can permanently exist, is' 
that which is barely adequate, at the given place and time, to afiord 
an equivalent for the abstinence, risk, and exertion implied in the! 
employment of capital. From the gross profit has first to be 
deducted as much as will form a fund sufficient on the average to 
cover all losses incident to the employment. Next, it must afford' 
such an equivalent to the owner of the capital for forbearing to 
consume it, as is then and there a sufficient motive to him to persist j 
in his abstinence. How much will be required to form this equiva- 
lent depends on the comparative value placed, in the given society, 
upon the present and the future : (in the words formerly used) on 
the strength of the effective desire of accumulation. Further, after 
covering all losses, and remunerating the owner for forbearing to 
consume,! there must be something left to recompense the labour 
and skill of the person who devotes his time to the business. This 
recompense too must be sufficient to enable at least the owners of 
the larger capitals to receive for their trouble, or to pay to some 
manager for his, what to them or him will be a sufficient inducement 
for undergoing it. If the surplus is no more than this, none but 

^ [So from the 3rd ed. (1852). The original text had " for his self -denial"] 



408 BOOK n. CHAPTER XV. § 2 

large masses of capital will be employed productively ; and if it did 
not even amount to this, capital would be withdrawn from production, 
and unproductively consumed, until, by an indirect consequence 
of its diminished amount, to be explained hereafter, the rate of 
profit was raised. 

Such, then, is the minimum of profits : but that minimum is 
exceedingly variable, and at some times and places extremely low ; 
on account of the great variableness of two out of its three elements. 
That the rate of necessary remuneration for abstinence, or in other 
words the effective desire of accumulation, differs widely in different 
states of society and civilization, has been seen in a former chapter. 
There is a still wider difference in the element which consists in com- 
pensation for risk. I am not now speaking of the differences in point 
of risk between different employments of capital in the same society, 
but of the very different degrees of security of property in different 
states of society. Where, as in many of the governments of Asia, 
property is in perpetual danger of spoliation from a tyrannical 
government, or from its rapacious and ill-controlled officers ; where 
to possess or to be suspected of possessing wealth, is to be a mark not 
only for plunder, but perhaps for personal ill-treatment to extort 
the disclosure and surrender of hidden valuables ; or where, as in 
the European Middle Ages, the weakness of the government, even 
when not itself inclined to oppress, leaves its subjects exposed 
without protection or redress to active spoliation, or audacious with- 
holding of just rights, by any powerful individual ; the rate of profit 
which persons of average dispositions will require, to make them 
forego the immediate enjoyment of what they happen to possess, 
for the purpose of exposing it and themselves to these perils, must 
be something very considerable. And these contingencies affect 
those who hve on the mere interest of their capital, in common 
with those who personally engage in production. In a generally 
secure state of society, the risks which may be attendant on the 
nature of particular employments seldom fall on the person who 
lends his capital, if he lends on good security ; but in a state of 
society like that of many parts of Asia, no security (except perhaps 
the actual pledge of gold or jewels) is good : and the mere possession 
of a hoard, when known or suspected, exposes it and the possessor 
to risks, for which scarcely any profit he could expect to obtain 
would be an equivalent ; so that there would be still less accumula- 
tion than there is, if a state of insecurity did not also multiply the 
occasions on which the possession of a treasure may be the means 



PROFITS 409 

of saving life or averting serious calamities. Those wlio lend under i 
these w retched governments^ do it at the utmost peril of never 
being paid. In most of the native states of India, the lowest terms 
on which any one will lend money, even to the government, are such, 
that if the interest is paid only for a few years, and the principal not 
at all, the lender is tolerably well indemnified. If the accumulation 
of principal and compound interest is ultimately compromised at a 
few shilHngs in the pound, he has generally made an advantageous 
bargain. 

§ 3. The remuneration of capital in different employments, 
much more than ^ the remuneration of labour, varies according to 
the circumstances which render one employment more attractive, 
or more repulsive, than another. The profits, for example, of retail 
trade, in proportion to the capital employed, exceed those of whole- 
sale dealers or manufacturers, for this reason among others, that 
there is less consideration attached to the employment. The 
greatest, however, of these differences, is that caused by difference 
of risk. The profits of a gunpowder manufacturer must be 
considerably greater than the average, to make up for the pecuUar 
risks to which he and his property are constantly exposed. When, 
however, as in the case of marine adventure, the pecuUar risks are 
capable of being, and commonly are, commuted for a fixed payment, 
the premium of insurance takes its tegular place among the charges 
of production, and the compensation which the owner of the ship 
or cargo receives for that payment, does not appear in the estimate of 
his profits, but is included in the replacement of his capital. 

The portion, too, of the gross profit, which forms the remunera- 
tion for the labour and skill of the dealer or producer, is very different 
in different employments. This is the explanation always given of 
the extraordinary rate of apothecaries' profit ; the greatest part, 
as Adam Smith observes, being frequently no more than the reason- 
able wages of professional attendance ; for which, until a late 
alteration of the law, the apothecary could not demand any re- 
munerp-tion, except in the prices of his drugs. Some occupations 
require a considerable amount of scientific or technical education, 
and can [1848] only be carried on by persons who combine with 
that education a considerable capital. Such is the business of an 
engineer, both in the original sense of the term, a machine-maker, 

1 [" Much more than " replaced in the 3rd ed.(1852) the " like " of the original 
text. a. supra, book ii. ch. xiv. § 1.J 



410 BOOK 11. CHAPTER XV. § 4 

and in its popular or derivative sense, an undertaker of public works. 
These are always the most profitable employments. There are 
cases, again, in which a considerable amount of labour and skill is 
required to conduct a business necessarily of limited extent. In 
such cases, a higher than common rate of profit is necessary to yield 
only the common rate of remuneration. " In a small seaport town," 
says Adam Smith, " a little grocer will make forty or fifty per cent 
upon a stock of a single hundred pounds, while a considerable 
wholesale merchant in the same place will scarce make eight or ten 
per cent upon a stock of ten thousand. The trade of the grocer may 
be necessary for the conveniency of the inhabitants, and the narrow- 
ness of the market may not admit the employment of a larger capital 
in the business. The man, however, must not only live by his trade, 
but Uve by it suitably to the qualifications which it requires. Besides 
possessing a little capital, he must be able to read, write, and account 
and must be a tolerable judge, too, of perhaps fifty or sixty different 
sorts of goods, their prices, qualities, and the markets where they 
are to be had cheapest. Thirty or forty pounds a year cannot be 
considered as too great a recompense for the labour of a person so 
accomplished. Deduct this from the seemingly great profits of his 
capital, and little more will remain, perhaps, than the ordinary 
profits of stock. The greater part of the apparent profit is, in this 
case, too, rea] wages." 

All the natural monopolies (meaning thereby those which are 
created by circumstances, and not by law) which produce or aggravate 
the disparities in the remuneration of different kinds of labour, 
operate similarly between different employments of capital. If 
a business can only be advantageously carried on by a large capital, 
this in most countries hmits so narrowly the class of persons who 
can enter into the employment, that they are enabled to keep their 
rate of profit above the general level. A trade may also, from the 
nature of the case, be confined to so few hands, that profits may 
admit of being kept up by a combination among the dealers. It is 
well known that even among so numerous a body as the London 
booksellers, this sort of combination long continued to exist.i I 
have already mentioned the case of the gas and water companies. 

§ 4, After due allowance is made for these various causes 

1 [So from the 4th ed. (1857). In earlier editions : " this sort of combination 
exists ; though individual interest is often too strong for its rules ; nor, indeed, 
does the combination itself include the whole trade."] 



PROFITS 411 

of inequality, namelyj differences in the risk or agreeableness of 
different employments, and natural or artificial monopolies ; the 
rate of profit on capital in all employments tends to an equality^ 
Such is the proposition usually laid down by political economists, 
and under proper explanations it is true. ~~ 

TFat" portion of profit which is properly interest, and which 
forms the remuneration for abstinence, is strictly the same, at the 
same time and place, whatever be the employment. The rate 
of interest, on equally good security, does not vary according to 
the destination of the principal, though it does vary from time 
to time very much according to the circumstances of the market. 
There is no employment in which, in the present state of industry, 
competition is so active and incessant as in the lending and borrowing 
of money. All persons in business are occasionally, and most of 
them constantly, borrowers : while all persons not in business, who 
possess monied property, are lenders. Between these two great 
bodies there is a numerous, keen, and intelHgent class of middlemen, 
composed of bankers, stockbrokers, discount brokers, and others, 
aUve to the sHghtest breath of probable gain. The smallest circum- 
stance, or the most transient impression on the pubHc mind, which 
tends to an increase or diminution of the demand for loans either 
at the time or prospectively, operates immediately on ihe rate of 
interest : and circumstances in the general state of trade, really 
tending to cause this difference of demand, are continually occurring, 
sometimes to such an extent, that the rate of interest on the best 
mercantile bills has been known to vary in little more than a year 
(even without the occurrence of the great derangement called a 
commercial crisis) from four, or less, to eight or nine per cent. 
But, at the same time and place, the rate of interest is the same, 
to all who can give equally good security. The market rate of 
interest is at all times a known and definite thing. 

It is far otherwise with gross profit ; which, though (as will 
presently be seen) it does not vary much from employment to 
employment, varies very greatly from individual to individual, and 
can scarcely be in any two cases the same. It depends on the know- 
ledge, talents, economy, and energy of the capitahst himself, or 
of the agents whom he employs ; on the accidents of personal 
connexion ; and even on chance. Hardly any two dealers in the 
same trade, even if their commodities are equally good and equally 
cheap, carry on their business at the same expense, or turn over 
their capital in the same time. That equal capitals give equal 



4ia J30UK H. CHAPTER XV. § 4 

profits, as a general maxim of trade, would be as false as that equal 
age or size gives equal bodily strength, or that equal reading or 
experience gives equal knowledge. The efiect depends as much 
upon twenty other things, as upon the single cause specified. 

But though profits thus vary, the parity, on the whole, of different 
modes of employing capital (in the absence of any natural or artificial 
monopoly) is, in a certain and a very important sense, maintained. 
On an average (whatever may be the occasional fluctuations) the 
various employments of capital are on such a footing as to hold out, 
not equal profits, but equal expectations * of profit, to persons of 
average abilities and advantages. By equal, I mean after making 
compensation for any inferiority in the agreeableness or safety of an 
employment. If the case were not so ; if there were, evidently, and 
to common experience, more favourable chances of pecuniary success 
in one business than in others, more persons would engage their 
capital in the business, or would bring up their sons to it ; which 
in fact always happens when a business, like that of an engineer 
at present [1848], or like any newly estabhshed and prosperous 
manufacture, is seen to be a growing and thriving one. If, on the 
contrary, a business is not considered thriving ; if the chances of 
profit in it are thought to be inferior to those in other employments ; 
capital gradually leaves it, or at least new capital is not attracted to 
it ; and by this change in the distribution of capital between the 
less profitable and the more profitable employments, a sort of balance 
is restored. The expectations of profit, therefore, iq different employ- 
ments, cannot long continue very different : they tend to a common 
average, though they are generally oscillating from one side to the 
other side of the medium. 

This equalizing process, commonly described as the transfer 
of capital from one employment to another, is not necessarily 
the onerous, slow, and almost impracticable operation which it 
is very often represented to be. In the first place, it does not 
always imply the actual removal of capital already embarked in 
an employment. In a rapidly progressive state of capital, the 
adjustment often takes place by means of the new accumulations 
of each year, which direct themselves in preference towards the 
more thriving trades. Even when a real transfer of capital is 
necessary, it is by no means implied that any of those who are 
engaged in the unprofitable employment relinquish business and 

* [Altered from " chances " as late as the 5th ed. (1862).] 



PROFITS ' V 413 

break up their establisLments. The numerous and multifarious 
channels of credit, through which, in commercial nations, unem- 
ployed capital diffuses itself over the field of employment, flowing 
over in greater abundance to the lower levels, are the means by 
which the equalization is accomplished. The process consists 
in a limitation by one class of dealers or producers, and an extension 
by the other, of that portion of their business which is carried on 
with borrowed capital. There is scarcely any dealer or producer 
on a considerable scale, who confines his business to what can 
be carried on by his own funds. When trade is good, he not only 
uses to the utmost his own capital, but employs, in addition, much 
of the credit which that capital obtains for him. When, either 
from over-supply or from some slackening in the demand for his 
commodity, he finds that it sells more slowly or obtains a lower 
price, he contracts his operations, and does not apply to bankers 
or other money dealers for a renewal of their advances to the same 
extent as before. A business which is increasing holds out, on the 
contrary, a prospect of profitable employment for a larger amount 
of this floating capital than previously, and those engaged in it 
become applicants to the money dealers for larger advances, which, 
from their improving circumstances, they have no difficulty in 
obtain^'r g. A diflerent distribution of floating capital between two 
employments has as much effect in restoring their profits to an 
equilibrium, as if the owners of an equal amount of capital were 
to abandon the one trade and carry their capital into the other. 
This easy, and as it were spontaneous, method of accommodating 
production to demand, is quite sufficient to correct any inequalities 
arising from the fluctuations of trade, or other causes of ordinary 
occurrence. In the case of an altogether declining trade, in which 
it is necessary that the production should be, not occasionally 
varied, but greatly and permanently diminished, or perhaps stopped 
altogether, the process of extricating the capital is, no doubt, tardy 
and difficult, and almost always attended with considerable loss ; 
much of the capital fixed in machinery, buildings, permanent 
works, &c. being either not applicable to any other purpose, or only 
applicable after expensive alterations ; and time being seldom 
given for effecting the change in the mode in which it would be 
effected with least loss, namely, by not replacing the fixed capital 
as it wears out. There is besides, in totally changing the destination 
of a capital, so great a sacrifice of established connexion, and of 
acquired skill and experience, that people are always very slow in 



^14 liUUK 11. CHAPTER XV. § 4 

resolving upon it, and hardly ever do so until long after a change 
of fortune has become hopeless. These, however, are distinctly 
exceptional cases, and even in these the equalization is at last 
effected. It may also happen that the return to equilibrium is 
considerably protracted, when, before one inequality has been 
corrected, another cause of inequality arises ; which is said to 
have been continually the case, during a long series of years, with the 
production of cotton in the Southern States of North America ; 
the commodity having been upheld at what was virtually a monopoly 
price, because the increase of demand, from successive improvements 
in the manufacture, went on with a rapidity so much beyond 
expectation that for many years the supply never completely over- 
took it. But it is not often that a succession of disturbing causes, 
all acting in the same direction, are known to follow one another 
with hardly any interval. Where there is no monopoly, the profits 
of a trade are likely to range sometimes above and sometimes below 
the general level, but tending always to return to it ; like the 
oscillations of the pendulum. 

In general, then, although profits are very different to different 
individuals, and to the same individual in different years, there 
cannot be much diversity at the same time and place in the average 
profits of different employments, (other than the standing differences 
necessary to compensate for difference of attractiveness,) except for 
short periods, or when some great permanent revulsion has overtaken 
a particular trade. If any popular impression exists that some 
trades are more profitable than others, independently of monopoly, or 
of such rare accidents as have been noticed in regard to the cotton 
trade, the impression is in all probability fallacious, since if it were 
shared by those who have greatest means of knowledge and motives 
to accurate examination, there would take place such an influx 
of capital as would soon lower the profits to the common level. It 
is true that, to persons with the same amount of original means, 
there is more chance of making a large fortune in some employments 
than in others. But it would be found that in those same employ- 
ments, bankruptcies also are more frequent, and that the chance 
of greater success is balanced by a greater probability of complete 
failure. Very often it is more than balanced : for, as was remarked in 
another case, the chance of great prizes operates with a greater 
degree of strength than arithmetic will warrant, in attracting 
competitors ; and I doubt not that the average gains, in a trade in 
which large fortunes may be made, are lower than in those in which 



PKOJ^TTS "^ ^~— -^o 

gains are slow, though comparatively sure, and in which nothing 
is to be ultimately hoped for beyond a competency. The timber 
trade of Canada is [1848] one example of an employment of capital 
partaking so much of the nature of a lottery, as to make it an 
accredited opinion that, taking the adventurers in the aggregate, 
there is more money lost by the trade than gained by it ; in other 
words, that the average rate of profit is less than nothing. In such 
points as this, much depends on the characters of nations, according 
as they partake more or less of the adventurous, or, as it is called 
when the intention is to blame it, the gambling spirit. This spirit 
is much stronger in the United States than in Great Britain ; and 
in Great Britain than in any country of the Continent. In some 
Continental countries the tendency is so much the reverse, that 
safe and quiet employments probably yield a less average profit to 
the capital engaged in them, than those which offer greater gains 
at the price of greater hazards. 

It must not however be forgotten, that even in the countries 
of most active competition, custom also has a considerable share 
in determining the profits of trade. There is sometimes an idea 
afloat as to what the profit of an employment should be, which 
though not adhered to by all the dealers, nor perhaps rigidly by 
any, stiU exercises a certain influence over their operations. There 
has been in England a kind of notion, how widely prevailing I know 
not, that fifty per cent is a proper and suitable rate of profit in 
retail transactions : understand, not fifty per cent on the whole 
capital, but an advance of fifty per cent on the wholesale prices ; 
from which have to be defrayed bad debts, shop rent, the pay of 
clerks, shopmen, and agents of all descriptions, in short all the 
expenses of the retail business. If this custom were universal, and 
strictly adhered to, competition indeed would still operate, but 
the consumer would not derive any benefit from it, at least as to 
price ; the way in which it would diminish the advantages of those 
engaged in the retail trade, would be by a greater subdivision of the 
business. In some parts of the Continent the standard is as high 
as a hundred per cent. The increase of competition however, in 
England at least, is rapidly tending to break down customs of this 
description. In the majority of trades (at least in the great emporia 
of trade), there are now numerous dealers whose motto is, " small 
gains and frequent " — a great business at low prices, rather than 
high prices and few transactions ; and by turning over their capital 
more rapidly, and adding to it by borrowed capital when needed, 



V 



the dealers often obtain individually higher profits ; though they 
necessarily lower the profits of those among their competitors who 
do not adopt the same principle. ^ Nevertheless, competition, as 
remarked * in a previous chapter, has, as yet, but a limited 
dominion over retail prices ; and consequently the share of the 
whole produce of land and labour which is absorbed in the remunera- 
tion of mere distributors, continues exorbitant ; and there is no 
function in the economy of society which supports a number of 
persons so disproportioned to the amount of work to be performed. 

§ 5. The preceding remarks have, I hope, sufficiently elucidated 
what is meant by the common phrase, " the ordinary rate of profit ; " 
and the sense in which, and the limitations under which, this 
ordinary rate has a real existence. It now remains to consider, 
what causes determine its amount. 

2 To popular apprehension it seems as if the profits of business 
depended upon prices. A producer or dealer seems to obtain his 
profits by selling his commodity for more than it cost him. Profit 
altogether, people are apt to think, is a consequence of purchase 
and sale. It is only (they suppose) because there are purchasers 
for a commodity, that the producer of it is able to make any profit. 
Demand — customers — a market for the commodity, are the cause 
of the gains of capitalists. It is by the sale of their goods, that 
they replace their capital, and add to its amount. 

This, however, is looking only at the outside surface of the 
economical machinery of society. In no case, we find, is the mere 
money which passes from one person to another, the fundamental 
matter in any economical phenomenon. If we look more narrowly 
into the operations of the producer, we shall perceive that the 
money he obtains for his commodity is not the cause of his having 
a profit, but only the mode in which his profit is paid to him. 
/The cause of profit is, that labour produces more than is required 
for its support. The reason why agricultural capital yields a profit, 
is because human beings can grow more food than is necessary to 
feed them while it is being grown, including the time occupied in 
constructing the tools, and making all other needful preparations : 
from which it is a consequence, that if a capitalist undertakes to 
feed the labourers on condition of receiving the produce, he has 



\ , 



[The rest of this paragraph was added in the 3rd ed. (1852).] 
* Vide supra, book ii. ch. iv. § 3. 
2 [The remainder of this section was added in the 4th ed. (1857).] 



PROFITS 417 

some of it remaining for himself after replacing his advances. To 
vary the form of the theorem : the reason why capital yields a profit, 
is because food, clothing, materials, and tools, last longer than the 
time which was required to produce them ; so that if a capitalist 
suppHes a party of labourers with these things, on condition of 
receiving all they produce, they will, in addition to reproducing their 
own necessaries and instruments, have a portion of their time 
remaining, to work for the capitalist. We thus see that profit arises, 
not from the incident of exchange, but from the productive power 
of labour ; and the general profit of the country is always what the 
productive power of labour makes it, whether any exchange takes 
place or not. If there were no division of employments, there would 
be no buying or selling, but there would still be profit. If the 
labourers of the country collectively produce twenty per cent more 
than their wages, profits will be twenty per cent, whatever prices 
may or may not be. The accidents of price may for a time make 
one set of producers get more than the twenty per cent, and another 
less, the one commodity being rated above its natural value in 
relation to other commodities, and the other below, until prices 
have again adjusted themselves ; but there will always be just 
twenty per cent divided among them all. 

I proceed, in expansion of the considerations thus briefly 
indicated, to exhibit more minutely the mode in which the rate of 
profit is determined. 

§ 6. I assume, throughout, the state of things, which, where 
the labourers and capitalists are separate classes, prevails, with 
few exceptions, universally ; namely, that the capitalist advances 
the whole expenses, including the entire remuneration of the labourer. 
That he should do so, is not a matter of inherent necessity ; the 
labourer might wait until the production is complete, for all that 
part of his wages which exceeds mere necessaries ; and even for the 
whole, if he has funds in hand, sufficient for his temporary support. 
But in the latter case, the labourer is to that extent really a capitaHst, 
investing capital in the concern, by supplying a portion of the 
funds necessary for carrying it on ; and even in the former case he 
may be looked upon in the same Ught, since, contributing his labour 
at less than the market price, he may be regarded as lending the 
difference to his employer, and receiving it back with interest (on 
whatever principle computed) from the proceeds of the enterprise. 

The capitalist, then, may be assumed to make all the advances, 



418 BOOK II. CHAPTER XV. § V 

and receive all the produce. His profit consists of the excess of 
the produce above the advances ; his rate of profit is the ratio which 
that excess bears to the amount advanced. But what do the 
advances consist of ? 

It is, for the present, necessary to suppose, that the capitalist 
does not pay any rent ; has not to purchase the use of any appro- 
priated natural agent. This indeed is scarcely ever the exact truth. 
The agricultural capitalist, except when he is the owner of the soil 
he cultivates, always, or almost always, ' pays rent : and even in 
manufactures, (not to mention ground-rent,) the materials of the 
manufacture have generally paid rent, in some stage of their 
production. The nature of rent, however, we have not yet taken into 
consideration ; and it will hereafter appear, that no practical error, 
on the question we are now examining, is produced by disregarding it. 

If, then, leaving rent out of the question, we inquire in what it is 
that the advances of the capitalist, for purposes of production, 
consist, we shall find that they consist of wages of labour. 

A large portion of the expenditure of every capitaHst consists 
in the direct payment of wages. What does not consist of this, is 
composed of materials and implements, including buildings. But 
materials and implements are produced by labour ; and as our 
supposed capitaHst is not meant to represent a single employment, 
but to be a type of the productive industry of the whole country, 
we may suppose that he makes his own tools, and raises his own 
materials. He does this by means of previous advances, which, 
again, consist wholly of wages. If we suppose him to buy the 
materials and tools instead of producing them, the case is not 
altered : he then repays to a previous producer the wages which 
that previous producer has paid. It is true, he repays it to him with 
a profit ; and if he had produced the things himself, he himself must 
have had that profit, on this part of his outlay, as well as on every 
other part. The fact, however, remains, that in the whole process of 
production, beginning with the materials and tools, and ending with 
the finished product, all the advances have consisted of nothing 
but wages ; except that certain of the capitalists concerned have, 
for the sake of general convenience, had their share of profit paid 
to them before the operation was completed. Whatever, of the 
ultimate product, is not profit, is repayment of wages. 

§ 7. It thus appears that the two elements on which, and which 
alone, the gains of the capitalists depend, are, first, the magnitude 



PROFITS 419 

of the produce, in other -words, the productive power of labour; 
and secondly, the proportion of that produce obtained by the 
labourers themselves ; the ratio which the remuneration of the 
labourers bears to the amount they produce. These two things 
form the data for determining the gross amount divided as profit 
among all the capitaUsts of the country ; but the rate of profit, the 
percentage on the capital, depends only on the second of the two 
elements, the labourer's proportional share, and not on the amount 
to be shared. If the produce of labour were doubled, and the 
labourers obtained the same proportional share as before, that is, 
if their remuneration was also doubled, the capitaHsts, it is true, 
would gain twice as much ; but as they would also have had to 
advance twice as much, the rate of their profit would be only the 
same as before. 

We thus arrive at the conclusion of Ricardo and others, that 
the rate of profits depends on wages ; rising as wages fall, and falling 
as wages rise. In adopting, however, this doctrine, I must insist 
upon making a most necessary alteration in its wording. Instead 
of saying that profits depend on wages, let us say (what Ricardo 
really meant) that they depend on the cost of labour. 

Wages, and the cost of labour ; what labour brings in to the 
labourer, and what it costs to the capitaHst ; are ideas quite distinct, 
and which it is of the utmost importance to keep so. For this 
purpose it is essential not to designate them, as is almost always 
done, by the same name. Wages, in pubhc discussions, both oral 
and printed, being looked upon from the point of view of the payers, 
much oftener than from that of the receivers, nothing is more 
common than to say that wages are high or low, meaning only that 
the cost of labour is high or low. The reverse of this would be oftener 
the truth : the cost of labour is frequently at its highest where wages 
are lowest. This may arise from two causes. In the first place, the 
labour, though cheap, may be inefficient. In no European country 
are wages so low as they are (or at least were ^) in Ireland : the 
remuneration of an agricultural labourer in the west of Ireland not 
being more than half the wages of even the lowest-paid Englishman, 
the Dorsetshire labourer. But if, from inferior skill and industry, 
two days' labour of an Irishman accompHshed no more work than 
an English labourer performed in one, the Irishman's labour cost 
as much as the EngHshman's, though it brought in so much less to 
himseK. The capitalist's profit is determined by the former of these 
1 [Added in the 4th ed. (1857).] 



420 BOOK II. CHAPTER XV. § 7 

two things, not by tlie latter. That a difierence to this extent really 
existed in the efficiency of the labour, is proved not only by abundant 
testimony, but by the fact, that notwithstanding the lowness of 
wages, profits of capital are not understood to have been higher in 
Ireland than in England. 

The other cause which renders wages, and the cost of labour, no 
real criteria of one another, is the varying costliness of the articles 
which the labourer consumes. If these are cheap, wages, in the 
sense which is of importance to the labourer, may be high, and yet 
the cost of labour may be low ; if dear, the labourer may be 
wretchedly off, though his labour may cost much to the capitalist. 
This last is the condition of a country over-peopled in relation to 
its land ; in which, food being dear, the poorness of the labourer's 
real reward does not prevent labour from costing much to the pur- 
chaser, and low wages and low profits co-exist. The opposite case 
is exemplified in the United States of America. The labourer there 
enjoys a greater abundance of comforts than in any other country 
of the world, except some of the newest colonies ; but owing to the 
cheap price at which these comforts can be obtained (combined 
with the great efficiency of the labour), the cost of labour to the 
capitalist is at least not higher, nor the rate of profit lower, than in 
Europe.^ 

The cost of labour, then, is, in the language of mathematics, a 
function of three variables : the efficiency of labour ; the wages of 
labour (meaning thereby the real reward of the labourer) ; and the 
greater or less cost at which the articles composing that real reward 
can be produced or procured. It is plain that the cost of labour to 
the capitaHst mustbe influenced by each of these three circumstances, 
and by no others. These, therefore, are also the circumstances 
which determine the rate of profit ; and it cannot be in any way 
affected except through one or other of them. If labour generally 
became more efficient, without being more highly rewarded ; if, 
without its becoming less efficient, its remuneration fell, no increase 
taking place in the cost of the articles composing that remuneration ; 
or if those articles became less costly, without the labourer's obtain- 
ing more of them ; in any one of these three cases, profits would 
rise. If, on the contrary, labour became less efficient (as it might 

^ [So from the 6th ed. (1865). The earlier editions ran : " the cost of 
labour to the capitalist is considerably lower than in Europe. It must be so, 
since the rate of profit is higher ; as indicated by the rate of interest, which is 
six per cent at New York when it is three or three and a quarter per cent in 
London."] 



PROFITS 421 

do from diminislied bodily vigour in the people, destruction of fixed 
capital, or deteriorated education) ; or if the labourer obtained a 
liigher remuneration, without any increased cheapness in the things 
composing it ; or if, without his obtaining more, that which he did 
obtain became more costly ; profits, in all these cases, would suffer 
a diminution. And there is no other combination of circumstances, 
in which the general rate of profit of a country, in all employments 
indifferently, can either fall or rise. 

The evidence of these propositions can only be stated generally, 
though, it is hoped, conclusively, in this stage of our subject. 
It will come out in ;5reater fulness and force when, having taken 
into consideration the theory of Value and Price, we shall be enabled 
to exhibit the law of profits in the concrete — in the complex 
entanglement of circumstances in which it actually works. This can 
only be done in the ensuing Book. One topic still remains to be 
discussed in the present one, so far as it admits of being treated 
independently of considerations of Value ; the subject of Rent; to 
which we now proceed.^ 

* [See Appendix Q. Profits,} 



CHAPTER XVI 

OF RENT 

§ 1. The requisites of production being labour, capital, and 

natural agents ; the only person, besides the labourer and the 

capitalist, whose consent is necessary to production, and who can 

claim a share of the produce as the price of that consent, is the 

person who, by the arrangements of society, possesses exclusive 

power over some natural agent. The land is the principal of the 

natural agents which are capable of being appropriated, and the 

consideration paid for its use is called rent. Landed proprietors are 

the only class, of any numbers or importance, who have a claim to a 

share in the distribution of the produce, through their ownership of 

something which neither they nor any one else have produced. If 

I there be any other cases of a similar nature, they will be easily 

understood, when the nature and laws of rent are comprehended. 

It is at once evident, that rent is the effect of a monopoly ; 

[ though the monopoly is a natural one, which may be regulated, 

I which may even be held as a trust for the community generally, but 

I which cannot be prevented from existing. The reason why land- 
owners are able to require rent for their land, is that it is a commodity 
which many want, and which no one can obtain but from them. 
If all the land of the country belonged to one person, he could fix 
the rent at his pleasure. The whole people would be dependent on 
his will for the necessaries of life, and he might make what con- 
ditions he chose. This is the actual state of things in those Oriental 
kingdoms in which the land is considered the property of the state. 
Rent is then confounded with taxation, and the despot may exact 
the utmost which the unfortunate cultivators have to give. Indeed, 
JmA^j the exclusive possessor of the kjid of a country could not well be 
_ *^ otKef thandespotof it. TEeeiSect would be much the same if the land 
^ Belonged to so few~people, that they could, and did, act together 
^\/'' as one man, and fix the rent by agreement among themselves. 
'^A^ This case, however, is nowhere known to exist : and the only 



RENT 423 

remaining supposition is that of free competition ; tlie landowners 
being supposed to be, as in fact they are, too numerous to combine. 

§ 2. A_thing^ jvhich js_Jiniited in quantity, even though its 
p ossessors do not act in co ncert, is still a monopoHzed articla. But 
even when monopoHzed, a thing which is the gift of nature, and 
requires no labour or outlay as the condition of its existence, will, if 
there be competition among the holders of it, command a price, only 
if it exists in less quantity than the demand. If the whole land of a 
country were required for cultivation, all of it might yield a rent. 
But in no country of any extent do the wants of the population 
require that all the land, which is capable of cultivation, should be 
cultivated. The food and other agricultural produce which the 
people need, and which they are willing and able to pay for at a 
price which remunerates the grower, may always be obtained 
without cultivating all the land ; sometimes without cultivating 
more than a small part of it ; the lands most easily cultivated being 
preferred in a very early stage of society ; ^ the most fertile, or those 
in the most convenient situations, in a more advanced state. There 
is always, therefore, some land which cannot, in existing circum- 
stances, pay any rent ; and no land ever pays rent, unless, in point 
of fertihty or situation, it belongs to those superior kinds which 
exist in less quantity than the demand — which cannot be made to 
yield all the produce required for the community, unless on terms 
still less advantageous than the resort to less favoured soils. 

There is land, such as the deserts of Arabia, which will yield 
nothing to any amount of labour ; and there is land, like some of 
our hard sandy heaths, which would produce something, but, in 
the present state of the soil, not enough to defray the expenses of 
production. Such lands, unless by some application of chemistry 
to agriculture still remaining to be invented, cannot be cultivated 
for profit, unless some one actually creates a soil, by spreading new 
ingredients over the surface, or mixing them with the existing 
materials. If ingredients fitted for this purpose exist in the subsoil, 
or close at hand, the improvement even of the most unpromising 
spots may answer as a speculation : but if those ingredients are 
costly, and must be brought from a distance, it will seldom answer 
to do this for the sake of profit, though the " magic of property " 
will sometimes effect it. Land whic|i cannot possibly yield a profit, 
is sometimes cultivated at a loss, the cultivators having their wants 

^ [This clause was inserted in the 6th ed. (1865).] 



424 BOOK 11. CHAPTER XVI. § 2 

partially supplied from other sources ; as in the case of paupers, and 
some monasteries or charitable institutions, among which may be 
reckoned the Poor Colonies of Belgium. The worst land which can 
de cultivated as a means of subsistence, is that which will just 
replace the seed, and the food of the labourers employed on it, 
together with what Dr. Chalmers calls their secondaries ; that is, 
the labourers required for supplying them with tools, and with the 
remaining necessaries of Hfe. Whether any given land is capable 
of doing more than this, is not a question of political economy, but 
of physical fact. The supposition leaves nothing for profits, nor 
Anything for the labourers except necessaries : the land, therefore, 
can only be cultivated by the labourers themselves, or else at a 
pecuniary loss : and a fortiori, cannot in any contingency afford a 
rent. The worse land which can be cultivated as an investment for 
capital, is that which, after replacing the seed, not only feeds the 
agricultural labourers and their secondaries, but affords them the 
current rate of wages, which may extend to much more than mere 
necessaries ; and leaves for those who have advanced the wages of 
these two classes of labourers, a surplus equal to the profit they 
could have expected from any other employment of their capital. 
Whether any given land can do more than this, is not merely a 
physical question, but depends partly on the market value of 
agricultural produce. What the land can do for the labourers and 
for the capitaHst, beyond feeding all whom it directly or indirectly 
employs, of course depends upon what the remainder of the produce 
can be sold for. The higher the market value of produce, the 
lower are the soils to which cultivation can descend, consistently 
with affording to the capital employed the ordinary rate of profit. 
As, however, differences of fertihty sHde into one another by 
insensible gradations ; and differences of accessibihty, that is, of 
distance from markets, do the same ; and since there is land so 
barren that it could not pay for its cultivation at any price ; it is 
evident that, whatever the price may be, there must in any extensive 
region be some land which at that price will just pay the wages of 
the cultivators, and yield to the capital employed the ordinary 
profit, and no more. Until, therefore, the price rises higher, or 
until some improvement raises that particular land to a higher place 
in the scale of fertihty, it cannot pay any rent. It is evident, 
however, that the community needs the produce of this quahty of 
land ; since if the lands more fertile or better situated than it, could 
have sufficed to supply the wants of society, the price would not have 



HENl? 425 

risen so high as to render its cultivation profitable. This land, 
therefore, will be cultivated ; and we may lay it down as a principle, 
that so long as any of the land of a country which is fit for cultiva- 
tion, and not withheld from it by legal or other factitious obstacles, 
is not cultivated, the worst land in actual cultivation (in point 
of fertihty and situation together) pays no rent. 

§ 3. If, then, of the land in cultivation, the part which yields 
least return to the labour and capital employed on it gives only the 
ordinary profit of capital, without leaving anything for rent ; a 
standard is afiorded for estimating the amount of rent which will _ ' 
be yielded b y all other land^ Any land yields just as much more 
than the ordinary profits of stock, as it yields more than what is 
returned by the worst land in cultivation. The surplus is what the 
farmer can afEord to pay as rent to the landlord ; and since, if he 
did not so pay it, he would receive more than the ordinary rate of 
profit, the competition of other capitaHsts, that c ompetition which -^ 
equahzes the profits of different capitals, will enable the landlord 
to appropriate it. (^Che^ rent, therefore, which any land wiU yield, 
is the excess of its produce beyond what would be returned to the 
same' capital if employed on the worst land in cultivation. ) This 
is^not, and never was pretended to be, the Hmit of metayer rents, 
or of cottier rents ; but it is the hmit of farmers' rents. No land 
rented to a capitaHst farmer will permanently yield more than this ; 
and when it yields less, it is because the landlord foregoes a part 
of what, if he chose, he could obtain. 

This is the theory of rent, first propounded at the end of the last 
century by Dr. Anderson, and which, neglected at the time, was 
almost simultaneously rediscovered, twenty years later, by Sir 
Edward West, Mr. Malthus, and Mr. Ricardo. It is one of the 
cardinal doctrines of poHtical economy ; and until it was understood, 
no consistent explanation could be given of many of the more comph- 
cated industrial phenomena. The evidence of its truth will be 
manifested with a great increase of clearness, when we come to trace 
the laws of the phenomena of Value and Price. Until that is done, 
it is not possible to free the doctrine from every difficulty which 
may present itself, nor perhaps to convey, to those previously 
unacquainted with the subject, more than a general apprehension of 
the reasoning by which the theorem is arrived at. Some, however, 
of the objections commonly made to it, admit of a complete answer 
even in the present stage of our inquiries. 



426 BOOK II. CHAPTER XVI. § 4 

It has been denied that there can be any land in cultivation 
which pays no rent ; because landlords (it is contended) would not 
allow their lands to be occupied without payment. Those who 
lay any stress on this as an objection, must think that land of the 
quahty which can but just pay for its cultivation, Hes together in 
large masses, detached from any land of better quahty. If an 
estate consisted wholly of this land, or of this and still worse, it is 
likely enough that the owner would not give the use of it for nothing ; 
he would probably (if a rich man) prefer keeping it for other pur- 
poses, as for exercise, or ornament, or perhaps as a game preserve. 
No farmer could afford to offer him anything for it, for purposes 
of culture ; though something would probably be obtained for the 
use of its natural pasture, or other spontaneous produce. Even such 
land, however, would not necessarily remain uncultivated. It 
might be farmed by the proprietor ; no unfrequent case even in 
England. Portions of it might be granted as temporary allotments 
to labouring famihes, either from philanthropic motives, or to save 
the poor-rate ; or occupation might be allowed to squatters, free 
of rent, in the hope that their labour might give it value at some 
future period. Both these cases are of quite ordinary occurrence. 
So that even if an estate were wholly composed of the worst land 
capable of profitable cultivation, it would not necessarily he 
uncultivated because it could pay no rent. Inferior land, however, 
does not usually occupy, without interruption, many square miles of 
ground ; it is dispersed here and there, with patches of better land 
intermixed, and the same person who rents the better land, obtains 
along with it the inferior soils which alternate with it. He pays a 
rent, nominally for the whole farm, but calculated on the produce 
of those parts alone (however small a portion of the whole) which 
are capable of returning more than the common rate of profit. It 
is thus scientifically truCj that the remaining parts pay no rent. 

§ 4. Let us, however, suppose that there were a vaHdity in 
this objection, which can by no means be conceded to it ; that 
when the demand of the community had forced up food to such a 
price as would remunerate the expense of producing it from a 
certain quahty of soil, it happened nevertheless that all the soil of 
that quality was withheld from cultivation, by the obstinacy of the 
owners in demanding a rent for it, not nominal, nor trifling, but 
sufficiently onerous to be a material item in the calculations of a 
farmer. What would then happen ? Merely that the increase of 



RENT 427 

produce, which the wants of society required, would for the time 
be obtained wholly (as it always is partially), not by an extension 
of cultivation, but by an increased application of labour and capital 
to land already cultivated. 

Now we have already seen that this increased appKcation of 
capital, other things being unaltered, is always attended with a 
smaller proportional return. We are not to suppose some new 
agricultural invention made precisely at this juncture ; nor a 
sudden extension of agricultural skill and knowledge, bringing 
into more general practice, just then, inventions already in partial 
use. We are to suppose no change, except a demand for more corn, 
and a consequent rise of its price. The rise of price enables measures 
to be taken for increasing the produce, which could not have been 
taken with profit at the previous price. The farmer uses more 
expensive manures ; or manures land which he formerly left to 
nature ; or procures lime or marl from a distance, as a dressing 
for the soil ; or pulverizes or weeds it more thoroughly ; or drains, 
irrigates, or subsoils portions of it, which at former prices would not 
have paid the cost of the operation ; and so forth. These things, 
or some of them, are done, when, more food being wanted, cultivation 
has no means of expanding itself upon new lands. And when 
the impulse is given to extract an increased amount of produce from 
the soil, the farmer or improver will only consider whether the 
outlay he makes for the purpose will be returned to him with the 
ordinary profit, and not whether any surplus will remain for rent. 
Even, therefore, if it were the fact, that there is never any land 
taken into cultivation, for which rent, and that too of an amount 
worth taking into consideration, was not paid ; it would be true, 
nevertheless, that there is always some agricultural capital which 
pays no rent, because it returns nothing beyond the ordinary rate 
of profit : this capital being the portion of capital last applied 
— that to which the last addition to the produce was due : or (to 
express the essentials of the case in one phrase), that which is 
appHed in the least favourable circumstances. But the same 
amount of demand, and the same price, which enable this least 
productive portion of capital barely to replace itself with the ordinary 
profit, enable every other portion to yield a surplus proportioned 
to the advantage it possesses. And this surplus it is, which competi- \ 
tion enables the landlord t o appropr i ate. The rent of all land is 
measured by the excess of the return to the whole capital employed 
on it, above what is necessary to replace the capital with the ordinary 



428 BOOK II. CHAPTER XVI, § 4 

rate of profit, or in other words, above wliat tlie same capital would 
yield if it were all employed in as disadvantageous circumstances 
as the least productive portion of it ; whether that least productive 
portion of capital is rendered so by being employed on the worst 
soil, or by being expended in extorting more produce from land 
which already yielded as much as it could be made to part with on 
easier terms. 

It is not pretended that the facts of any concrete case conform 
with absolute precision to this or any other scientific principle. 
We must never forget that the truths of political economy are 
truths only in the rough : they have the certainty, but not the 
precision, of exact science.^ It is not, for example, strictly true 
that a farmer will cultivate no land, and apply no capital, which 
returns less than the ordinary profit. He will expect the ordinary 
profit on the bulk of his capital. But when he has cast in his lot 
with his farm, and bartered his skill and exertions, once for all, 
against what the farm will yield to him, he will probably be willing 
to expend capital on it (for an immediate return) in any manner 
which will afiord him a surplus profit, however small, beyond 
the value of the risk, and the interest which he must pay for the 
capital if borrowed, or can get for it elsewhere if it is his own. But 
a new farmer, entering on the land, would make his calculations 
differently, and would not commence unless he could expect the full 
rate of ordinary profit on all the capital which he intended embarking 
in the enterprise. Again, prices may range higher or lower during the 
currency of a lease, than was expected when the contract was 
made, and the land, therefore, may be over or under-rented : and 
even when the lease expires, the landlord may be unwilling to grant 
a necessary diminution of rent, and the farmer, rather than relinquish 
his occupation, or seek a farm elsewhere when all are occupied, 
may consent to go on paying too high a rent. Irregularities like 
these we must always expect ; it is impossible in political economy 
to obtain general theorems embracing the complication of circum- 
stances which may affect the result in an individual case. When, 
too,2 the farmer class, having but little capital, cultivate for subsis- 
tence rather than for profit, and do not think of quitting their farm 
while they are able to live by it, their rents approximate to the 
character of cottier rents, and may be forced up by competition 
(if the number of competitors exceeds the number of farms) beyond 

^ [This explanatory phrase was added in the 6th ed. (1865).] 
' [This sentence was inserted in the 3rd ed. (1852).] 



RENT 429 

tlie amount wHcli will leave to the farmer the ordinary rate of 
profit. The laws which we are enabled to lay down respecting rents, 
profits, wages, prices, are only true in so far as the persons concerned 
are free from the influence of any other motives than those arising 
from the general circumstances of the case, and are guided, as to 
those, by the ordinary mercantile estimate of profit and loss. 
Applying this twofold supposition to the case of farmers and land- 
lords, it will be true that the farmer requires the ordinary rate of 
profit on the whole of his capital ; that whatever it returns to him 
beyond this he is obliged to pay to the landlord, but will not consent 
to pay more ; that there is a portion of capital applied to agriculture 
in such circumstances of productiveness as to yield only the ordinary 
profits ; and that the difference between the produce of this, and 
of any other capital of similar amount, is the measure of the tribute 
which that other capital can and will pay, under the name of rent, 
to the landlord. This constitutes a law of rent, as near the truth as 
such a law can possibly be : though of course modified or disturbed in 
individual cases, by pending contracts, individual miscalculations, 
the influence of habit, and even the particular feelings and dispositions 
of the persons concerned. 

§ 5. A remark is often made, which must not here be omitted, 
though, I think, more importance has been attached to it than it 
merits. Under the name of rent, many payments are commonly 
included which are not a remuneration for the original powers of 
the land itself, but for capital expended on it. The additional rent 
which land yields in consequence of this outlay of capital, should, 
in the opinion of some writers, be regarded as profit, not rent. 
But before this can be admitted, a distinction must be made. The 
annual payment by a tenant almost always includes a consideration 
for the use of the buildings on the farm ; not only barns, stables, 
and other outhouses, but a house to live in, not to speak of fences 
and the like. The landlord will ask, and the tenant give, for these, 
whatever is considered sufficient to yield the ordinary profit, or 
rather (risk and trouble being here out of the question) the ordinary 
interest, on the value of the buildings : that is, not on what it has 
cost to erect them, but on what it would now cost to erect others 
as good : the tenant being bound, in addition, to leave them in as 
good repair as he found them, for otherwise a much larger payment 
than simple interest would of course be required from him. These 
buildings are as distinct a thing from the farm as the stock or th© 



430 BOOK 11. CHAPTER XVI. § 5 

timber on it ; and what is paid for them can no more be called rent 
of land, than a payment for cattle would be, if it were the custom 
that the landlord should stock the farm for the tenant. The buildings, 
like the cattle, are not land, but capital, regularly consumed and 
reproduced ; and all payments made in consideration for them are 
properly interest. 

But with regard to capital actually sunk in improvements, and 
not requiring periodical renewal, but spent once for all in giving 
the land a permanent increase of productiveness, it appears to me 
that the return made to such capital loses altogether the character of 
profits, and is governed by the principles of rent. It is true that a 
landlord will not expend capital in improving his estate, unless he 
expects from the improvement an increase of income surpassing the 
interest of his outlay. Prospectively, this increase of income may be 
regarded as profit ; but when the expense has been incurred, and 
the improvement made, the rent of the improved land is governed 
by the same rules as that of the unimproved. Equally fertile land 
commands an equal rent, whether its fertility is natural or acquired ; 
and I cannot think that the incomes of those who own the Bedford 
Level or the Lincolnshire Wolds ought to be called profit and not 
rent because those lands would have been worth next to nothing 
unless capital had been expended on them. The owners are not 
capitalists, but landlords ; they have parted with their capital ; 
it is consumed, destroyed ; and neither is, nor is to be, returned to 
them, Hke the capital of a farmer or manufacturer, from what it 
produces. In lieu of it they now have land of a certain richness, 
which yields the same rent, and by the operation of the same causes, 
as if it had possessed from the beginning the degree of fertihty which 
has been artificially given to it. 

Some writers, in particular Mr. H. C. Carey, take away, still 
more completely than I have attempted to do, the distinction 
between these two sources of rent, by rejecting one of them altogether, 
and considering all rent as the effect of capital expended. In 
proof of this, Mr. Carey contends that the whole pecuniary value of 
all the land in any country, in England for instance, or in the 
United States, does not amount to anything approaching to the 
sum which has been laid out, or which it would even now be necessary 
to lay out, in order to bring the country to its present condition 
from a state of primaeval forest. This starthng statement has been 
seized on by M. Bastiat ^ and others, as a means of making out a 
^ [The reference to Bastio-t we^s inserted in the 3rd ed, (1852). The 



RENT 431 

sironger case tlian could otherwise be made in defence of property 
in land. Mr. Carey's proposition, in its most obvious meaning, 
is equivalent to saying, that if there were suddenly added to the 
lands of England an unreclaimed territory of equal natural fertihty, 
it would not be worth the while of the inhabitants of England to 
reclaim it : because the profits of the operation would not be equal 
to the ordinary interest on the capital expended. To which as- 
sertion, if any answer could be supposed to be required, it would 
suffice to remark, that land not of equal but of greatly inferior quahty 
to that previously cultivated, is continually reclaimed in England, 
at an expense which the subsequently accruing rent is sufficient to 
replace completely in a small number of years. The doctrine, 
moreover, is totally opposed to Mr. Carey's own economical opinions. 
No one maintains more strenuously than Mr. Carey the undoubted 
truth, that as society advances in population, wealth, and com- 
bination of labour, land constantly rises in value and price. This, 
however, could not possibly be true, if the present value of land 
were less than the expense of clearing it and making it fit for cultiva- 
tion ; for it must have been worth this immediately after it was 
cleared ; and according to Mr. Carey it has been rising in value 
ever since. 

When, however, Mr. Carey asserts that the whole land of any 
country is not now worth the capital which has been expended on it, 
he does not mean that each particular estate is worth less than 
what has been laid out in improving it, and that, to the proprietors, 
the improvement of the land has been, in the final result, a mis- 
calculation. He means, not that the land of Great Britain would 
not now sell for what has been laid out upon it, but that it would 
not sell for that amount plus the expense of making all the roads, 
canals, and railways. This is probably true, but is no more to the 
purpose, and no more important in poHtical economy, than»if the 
statement had been, that it would not sell for the sums laid out on 
it plus the national debt, or plus the cost of the French E evolutionary 
war, or any other expense incurred for a real or imaginary pubHc 
advantage. The roads, railways, and canals were not constructed 
to give value to land : on the contrary, their natural effect was to 
lower its value, by rendering other and rival lands accessible : and 
the landlords of the southern counties actually petitioned Parlia- 
ment against the turnpike roads on this very account. 

remainder of tliis paragraph, together with the following paragraph, took their 
present form finally in the 6th ed. (1865).] 



432 BOOK IL CHAPTER XVI. § 5 

The tendency of improved communications is to lower existing 
rents, by trencHng on tlie monopoly of the land nearest to the 
places where large numbers of consumers are assembled. Roads 
and canals are not intended to raise the value of the land which 
already suppHes the markets, but (among other purposes) to cheapen 
the supply, by letting in the produce of other and more distant 
lands ; and the more effectually this purpose is attained, the lower 
rent wiU be. If we could imagine that the railways and canals of 
the United States, instead of only cheapening communication, did 
their business so effectually as to annihilate cost of carriage alto- 
gether, and enable the produce of Michigan to reach the market of 
New York as quickly and as cheaply as the produce of Long Island — 
the whole value of all the land of the United States (except such as 
lies convenient for building) would be annihilated ; or rather, the 
best would only sell for the expense of clearing, and the government 
tax of a dollar and a quarter per acre ; since land in Michigan, 
equal to the best in the United States, may be had in unlimited 
abundance by that amount of outlay. But it is strange that Mr. 
Carey should think this fact inconsistent with the Ricardo theory 
of rent. Admitting aU that he asserts, it is still true that as long 
as there is land which yields no rent, the land which does yield rent, 
does so in consequence of some advantage which it enjoys, in fertihty 
or vicinity to markets, over the other ; and the measure of its 
advantage is also the measure of its rent. And the cause of its 
yielding rent is that it possesses a natural monopoly ; the quantity 
of land, as favourably circumstanced as itself, not being sufhcient 
to supply the market. These propositions constitute the theory 
of rent laid down by Ricardo ; and if they are true, I cannot see 
that it signifies much whether the rent which the land yields at 
the present time, is greater or less than the interest of the capital 
which has been laid out to raise its value, together with the interest 
of the capital which has been laid out to lower its value. 

Mr. Carey's objection, however, has somewhat more of ingenuity 
than the arguments commonly met with against the theory of rent ; 
a theorem which may be called the pons asinorum of political 
economy, for there are, I am inclined to think, few persons who have 
refused their assent to it except from not having thoroughly under- 
stood it. The loose and inaccurate way in which it is often 
apprehended by those who affect to refute it, is very remarkable. 
Many, for instance, have imputed absurdity to Mr. Ricardo's 
theory, because it is absurd to say that the cultivation of inferior 



EENT 433 

land is the cause of rent on the superior. Mr. Ricardo does not say 
that it is the cultivation of inferior land, but the necessity of cultivat- 
ing it, from the insufficiency of the superior land to feed a growing 
population : between which and the proposition imputed to him 
there is no less a difierence than that between demand and supply. 
Others again allege as an objection against Ricardo, that if all 
land were of equal fertility, it might still yield a rent. But 
Ricardo says precisely the same. He says that if all lands were 
equally fertile, those which are nearer to their market than others, 
and are therefore less burthened with cost of carriage, would yield 
a rent equivalent to the advantage ; and that the land yielding 
no rent would then be, not the least fertile, but the least advantage- 
ously situated, which the wants of the community required to be 
brought into cultivation. It is also distinctly a portion of Ricardo's 
doctrine, that even apart from differences of situation, the land of 
a country supposed to be of uniform fertility would, all of it, on a 
certain supposition, pay rent : namely, if the demand of the com- 
munity required that it should all be cultivated, and cultivated 
beyond the point at which a further application of capital begins 
to be attended with a smaller proportional return. It would be 
impossible to show that, except by forcible exaction, the whole 
land of a country can yield a rent on any other supposition.^ 

§ 6. After this view of the nature and causes of rent, let us 
turn back to the subject of profits, and bring up for reconsideration 
one of the propositions laid down in the last chapter. We there 
stated, that the advances of the capitalist, or in other words, the 
expenses of production, consist solely in wages of labour ; that 
whatever portion of the outlay is not wages, is previous profit, and 
whatever is not previous profit, is wages. Rent, however, being 
an element which it is impossible to resolve into either profits or 
wages, we were obliged, for the moment, to assume that the capitalist 
is not required to pay rent — to give an equivalent for the use of an 
appropriated natural agent : and I undertook to show in the proper 
place, that this is an allowable supposition, and that rent does not 
really form any part of the expenses of production, or of the advances 
of the capitalist. The grounds on which this assertion was made 
are now apparent. It is true that all tenant farmers, and many 

^ [So from the 5th ed. (1862). Until then the concluding sentence of the 
paragraph had been : " It would be difficult to show that the whole land of the 
country can yield a rent on any other supposition."] 



434 BOOK II. CHAPTER XVL § 6 

other classes of producers, pay rent. But we have now seen, that 
whoever cultivates land, paying a rent for it, gets in return for his 
rent an instrument of superior power to other instruments of the 
same kind for which no rent is paid. The superiority of the instru- 
ment is in exact proportion to the rent paid for it. If a few persons 
had steam-engines of superior power to all others in existence, but 
limited by physical laws to a number short of the demand, the rent 
which a manufacturer would be willing to pay for one of these 
steam-engines could not be looked upon as an addition to his outlay, 
because by the use of it he would save in his other expenses the 
equivalent of what it cost him : without it he could not do the 
same quantity of work, unless at an additional expense equal to 
the rent. The same thing is true of land. The real expenses of 
production are those incurred on the worst land, or by the capital 
employed in the least favourable circumstances. This land or 
capital pays, as we have seen, no rent ; but the expenses to which 
it is subject cause all other land or agricultural capital to be sub- 
jected to an equivalent expense in the form of rent. Whoever 
does pay rent gets back its full value in extra advantages, and the 
rent which be pays does not place him in a worse position than, but 
only in the same position as, his fellow-producer who pays no rent, 
but whose instrument is one of inferior efficiency. 

We have now completed th.e exposition of the laws which regulate 
the distribution of the produce of land, labour, and capital, as far 
as it is possible to discuss those laws independently of the instru- 
mentahty by which in a civilized society the distribution is effected ; 
. the machinery of Exchange and Price. The more complete elucida- 
tion and final confirmation of the laws which we have laid down, 
and the deduction of their most important consequences, must be 
preceded by an explanation of the nature and working of that 
machinery — a subject so extensive and complicated as to require a 
separate Book.^ 

* [See Appendix R. Rent.} 



BOOK III 
EXCHANGE 

CHAPTER I 

OF VALUE 

§ 1. The subject on wHcli we are now about to enter fills so 
important and conspicuous a position in political economy, that in 
tbe apprehension of some thinkers its boundaries confound them- 
selves with those of the science itself. One eminent writer has 
proposed as a name for PoUtical Economy, " Catallactics,'* or the 
science of exchanges : by others it has been called the Science of 
Values. If these denominations had appeared to me logically 
correct, I must have placed the discussion of the elementary laws 
of value at the commencement of our inquiry, instead of postponing 
it to the Third Part ; and the possibility of so long deferring it is 
alone a sufficient proof that this view of the nature of PoHtical 
Economy is too confined. It is true that in the preceding Books we 
have not escaped the necessity of anticipating some small portion of 
the theory of Value, especially as to the value of labour and of land. 
It is nevertheless evident, that of the two great departments of 
Pohtical Economy, the production of wealth and its distribution, 
the consideration of Value has to do with the latter alone ; and with 
that, only so far as competition, and not usage or custom, is the 
distributing agency. The conditions and laws of Production would 
be the same as they are, if the arrangements of society did not 
depend on Exchange, or did not admit of it. Even in the present 
system of industrial Hfe, in which employments are minutely sub- 
divided, and all concerned in production depend for their remunera- 
tion on the price of a particular commodity, exchange is not the 



436 BOOK III. CHAPTER I. § 2 

fundamental law of the distribution of the produce, no more than 
roads and carriages are the essential laws of motion, but merely a 
part of the machinery for effecting it. To confound these ideas 
seems to me not only a logical, but a practical blunder. It is a 
case of the error too common in political economy, of not distinguish- 
ing between necessities arising from the nature of things, and those 
created by social arrangements : an error which appears to me to 
be at all times producing two opposite mischiefs ; on the one hand, 
causing political economists to class the merely temporary truths 
of their subject among its permanent and universal laws ; and on 
the other, leading many persons to mistake the permanent laws of 
Production (such as those on which the necessity is grounded of 
restraining population) for temporary accidents arising from the 
existing constitution of society— which those who would frame a 
new system of social arrangements are at liberty to disregard. 

In a state of society, however, in which the industrial system is 
entirely founded on purchase and sale, each individual, for the most 
part, living not on things in the production of which he himself bears 
a part, but on things obtained by a double exchange, a sale followed 
by a purchase — ^the question of Value is fundamental. Almost 
every speculation respecting the economical interests of a society 
thus constituted implies some theory of Value : the smallest error 
on that subject infects with corresponding error all our other con- 
clusions ; and anything vague or misty in our conception of it 
creates confusion and uncertainty in everything else. Happily, 
there is nothing in the laws of value which remains [1848] for the 
present or any future writer to clear up ; the theory of the subject 
is complete : the only difficulty to be overcome is that of so stating 
it as to solve by anticipation the chief perplexities which occur in 
applying it: and to do this, some minuteness of exposition, and 
considerable demands on the patience of the reader, are unavoid- 
able. He will be amply repaid however (if ,a stranger to these 
inquiries), by the ease and rapidity with which a thorough under- 
standing of this subject will enable him to fathom most of the 
remaining questions of political economy. 

j § 2. We must begin by settling our phraseology. Adam Smith, 
in a passage often quoted, has touched upon the most obvious 
ambiguity of the word value ; which, in one of its senses, signifies 
usefulness, in another, power of purchasing ; in his own language, 

) value in use and value in exchange. But (as Mr. De Quincey has 



VALUE 437 

remarked) in illustrating this double meaning Adam Smith has 
himself fallen into another ambiguity. Things (he says) which have 
the greatest value in use have often little or no value in exchange ; 
which is true, since that which can be obtained without labour or 
sacrifice will command no price, however useful or needful it may be. 
But he proceeds to add, that things which have the greatest value 
in exchange, as a diamond for example, may have httle or no value 
in use. This is employing the word use, not in the sense in which 
political economy is concerned with it, but in that other sense in 
which use is opposed to pleasure. PoHtical economy has nothing to 
do with the comparative estimation of different uses in the judgment 
of a philosopher or of a morahst. The use of a thing, in poHtical 
economy, means its capacity to satisfy a desire or serve a purpose. 
Diamonds have this capacity in a high degree, and unless they had 
it, w(5uld not bear any price. Value in use, or as Mr. De Quincey 
calls it, teleologic value, is the extreme Hmit of value in exchange. 
The exchange value of a thing may fall short, to any amount, of its 
value in use ; but that it can ever exceed the value in use impHes a 
contradiction ; it supposes that persons will give, to possess a thing, 
more than the utmost value which they themselves put upon it as a 
means of gratifying their inchnations. 

The word Value, when used without adjunct, always means, in 1 
political economy, value in exchange ; or as it has been called by ] 
Adam Smdth and his successors, exchangeable value, a phrase which 1 
no amount of authority that can be quoted for it can make other • 
than bad English. Mr. De Quincey substitutes the term Exchange 
Value, which is unexceptionable. 

Exchange value requires to be distinguished from Price. The 
words Value and Price were used as synonymous by the early I 
poHtical economists, and are not always discriminated even by 
Ricardo. But the most accurate modern writers, to avoid the 
wasteful expenditure of two good scientific terms on a single idea, 
have employed Price to express the value of a thing in relation to 
money ; the quantity of money for which it will exchange. By 
the price of a thing, therefore, we shall henceforth understand its 
value in money ; by the value, or exchange value of a thing, its 
general power of purchasing ; the command which its possession 
gives over purchaseable commodities in general. 

§ 3. But here a fresh demand for explanation presents itself. 
What is meant by command over commodities in general"? The 



438 BOOK III. CHAPTER I. § 3 

same thing exchanges for a great quantity of some commodities, 
and for a very small quantity of others. A suit of clothes exchanges 
for a great quantity of bread, and for a very small quantity of 
precious stones. The value of a thing in exchange for some com- 
modities may be rising, for others falhng. A coat may exchange for 
less bread this year than last, if the harvest has been bad, but for 
more glass or iron, if a tax has been taken off those commodities, or 
an improvement made in their manufacture. Has the value of the 
coat, under these circumstances, fallen or risen ? It is impossible 
to say : all that can be said is, that it has fallen in relation to one 
thing, and risen in respect to another. But there is another case, 
in which no one would have any hesitation in saying what sort of 
change had taken place in the value of the coat : namely, if the 
cause in which the disturbance of exchange values originated was 
something directly affecting the coat itself, and not the bread or the 
glass. Suppose, for example, that an invention had been made in 
machinery by which broadcloth could be woven at half the former 
cost. The effect of this would be to lower the value of a coat, and 
if lowered by this cause, it would be lowered not in relation to bread 
only or to glass only, but to all purchaseable things, except such as 
happened to be affected at the very time by a similar depressing 
cause. We should therefore say that there had been a fall in the 
exchange value or general purchasing power of a coat. The idea of 
general exchange value originates in the fact, that there really are 
causes which tend to alter the value of a thing in exchange for 
things generally, that is, for all things which are not themselves 
acted upon by causes of similar tendency. 

In considering exchange value scientifically, it is expedient 
to obstract from it all causes except those which originate in the 
very commodity under consideration. Those which originate in the 
commodities with which we compare it, affect its value in relation 
to those commodities ; but those which originate in itself affect its 
value in relation to all commodities. In order the more completely 
to confine our attention to these last, it is convenient to assume that 
all commodities but the one in question remain invariable in their 
relative values. When we are considering the causes which raise or 
lower the value of corn, we suppose that woollens, silks, cutlery, 
sugar, timber, &c., while varying in their power of purchasing corn, 
remain constant in the proportions in which they exchange for one 
another. On this assumption, any one of them may be taken as a 
representative of all the rest ; since in whatever manner corn varies 



VALUE 439 

in value with respect to any one commodity, it varies in the same 
manner and degree with respect to every other ; and the upward or 
downward movement of its value estimated in some one thing is 
all that need be considered. Its money value, therefore, or price, 
will represent as well as anything else its general exchange value, 
or purchasing power ; and from an obvious convenience will often 
be employed by us in that representative character ; with the pro- 
viso that money itself do not vary in its general purchasing power, 
but that the prices of all things, other than that which we happen 
to be considering, remain unaltered. 

§ 4. The distinction between Value and Price, as we have now 
defined them, is so obvious, as scarcely to seem in need of any 
illustration. But in poKtical economy the greatest errors arise 
from overlooking the most obvious truths. Simple as this dis- 
tinction is, it has consequences with which a reader unacquainted 
with the subject would do well to begin early by maMng himself 
thoroughly familiar. The following is one of the principal. There 
is such a thing as a general rise of prices. All commodities may 
rise iu their money price. But there cannot be a general rise of 
values. It is a contradiction in terms. A can only rise in value by 
exchanging for a greater quantity of B and C ; in which case these 
must exchange for a smaller quantity of A. All things cannot rise 
relatively to one another. If one-half of the commodities in the 
market rise in exchange value, the very terms imply a fall of the 
other half ; and reciprocally, the fall implies a rise. Things which 
are exchanged for one another can no more all fall, or aU rise, than 
a dozen runners can each outrun all the rest, or a hundred trees all 
overtop one another. Simple as this truth is, we shall presently see 
that it is lost sight of in some of the most accredited doctrines both 
of theorists and of what are called practical men. And as a first 
specimen we may instance the great importance attached in the 
imagination of most people to a rise or fall of general prices. Because 
when the price of any one commodity rises, the circumstance usually 
indicates a rise of its value, people have an indistinct feeling when 
all prices rise, as if all things simultaneously had risen in value, and 
all the possessors had become enriched. That the money prices of 
all things should rise or fall, provided they all rise or fall equally, is 
in itself, and apart from existing contracts, of no consequence. It 
affects nobody's wages, profits, or rent. Every one gets more money 
in the one case and less in the other ; but of all that is to be bought 



440 BOOK III. CHAPTER 1. § 5 

with money they get neither more nor less than before. It makes 
no other difference than that of using more or fewer counters to 
reckon by. The only thing which in this case is really altered in 
value is money ; and the only persons who either gain or lose are 
the holders of money, or those who have to receive or to pay fixed 
sums of it. There is a difference to annuitants and to creditors the 
one way, and to those who are burthened with annuities, or with 
debts, the contrary way. There is a disturbance, in short, of fixed 
money contracts ; and this is an evil, whether it takes place in the 
debtor's favour or in the creditor's. But as to future transactions 
there is no difference to any one. Let it therefore be remembered 
(and occasions will often arise for calhng it to mind) that a general 
rise or a general fall of values is a contradiction ; and that a general 
rise or a general fall of prices is merely tantamount to an alteration 
in the value of money, and is a matter of complete indifference, save 
in so far as it affects existing contracts for receiving and paying 
fixed pecuniary amounts, ^ and (it must be added) as it affects the 
interests of the producers of money. 

§ 5. Before commencing the inquiry into the laws of value and 
price, I have one further observation to make. I must give warning, 
once for all, that the cases I contemplate are those in which values 
and prices are determined by competition alone. In so far only as 
they are thus determined can they be reduced to any assignable 
law. The buyers must be supposed as studious to buy cheap, as 
the sellers to sell dear. The values and prices, therefore, to which 
our conclusions apply, are mercantile values and prices ; such 
prices as are quoted in price-currents ; prices in the wholesale markets, 
in which buying as well as selHng is a matter of business ; in which 
the buyers take pains to know, and generally do know, the lowest 
price at which an article of a given quality can be obtained ; and 
in which, therefore, the axiom is true, that there cannot be for the 
same article, of the same quality, two prices in the same market. 
Our propositions will be true in a much more qualified sense of 
retail prices ; the prices paid in shops for articles of personal con- 
sumption. For such things there often are not merely two, but 
many prices, in different shops, or even in the same shop ; habit and 
accident having as much to do in the matter as general causes. 
Purchases for private use, even by people in business, are not 

* [The remaining words of the sentence were added in the 6th ed. (1865).] 



VALUE ^ 4A[ 

always made on business principles : the feelings wMch come into 
play in the operation of getting, and in that of spending their income, 
are often extremely different. Either from indolence, or careless- 
ness, or because people think it fine to pay and ask no questions, 
three-fourths of those who can afford it give much higher prices 
than necessary for the things they consume ; while the poor often 
do the same from ignorance and defect of judgment, want of time 
for searching and making inquiry, and not unfrequently from 
coercion, open or disguised. For these reasons, retail prices do not 
follow with all the regularity which might be expected the action 
of the causes which determine wholesale prices. The influence of 
those causes is ultimately felt in the retail markets, and is the real 
source of such variations in retail prices as are of a general and 
permanent character. But there is no regular or exact correspond- 
ence. Shoes of equally good quality are sold in different shops at 
prices which differ considerably ; and the price of leather may fail 
without causing the richer class of buyers to pay less for shoes. 
Nevertheless, shoes do sometimes fall in price ; and when they do, 
the cause is always some such general circumstance as the cheapen- 
ing of leather : and when leather is cheapened, even if no difference 
shows itself in shops frequented by rich people, the artizan and the 
labourer generally get their shoes cheaper, and there is a visible 
diminution in the contract prices at which shoes are delivered for 
the supply of a workhouse or of a regiment. In all reasoning 
about prices, the proviso must be understood, " supposing aUj 
parties to take care of their own interest." Inattention to these! j^ 
distinctions has led to improper appKcations of the abstract prin-| 
ciples of poHtical economy, and still often er to an undue discrediting 
of those principles, through their being compared with a different 
sort of facts from those which they contemplate, or which can fairly 
be expected to accord with them. 



CHAPTER II 

OF DEMAND AND SUPPLY, IN THEIR RELATION TO VALUE 

§ 1. That a thing may liave any value in excliange, two con- 
ditions are necessary. It must be of some use ; that is (as already 
explained), it must conduce to some purpose, satisfy some desire. 
No one will pay a price, or part with anything which serves some of 
his purposes, to obtain a thing which serves none of them. But, 

1 secondly, the thing must not only have some utiHty, there must also 
be some difficulty in its attainment. " Any article whatever," says 
Mr. De Quincey,* " to obtain that artificial sort of value which is 
meant by exchange value, must begin by offering itself as a means 
to some desirable purpose ; and secondly, even though possessing 
incontestably this preliminary advantage, it will never ascend to an 
exchange value in cases where it can be obtained gratuitously and 
without effort ; of which last terms both are necessary as limitations. 
For often it will happen that some desirable object may be obtained 
gratuitously ; stoop, and you gather it at your feet ; but still, 
because the continued iteration of this stooping exacts a laborious 
effort, very soon it is found that to gather for yourself virtually is 
not gratuitous. In the vast forests of the Canadas, at intervals, 
wild strawberries may be gratuitously gathered by shiploads : yet 
such is the exhaustion of a stooping posture, and of a labour so 
monotonous, that everybody is soon glad to resign the service into 
mercenary hands." 

As was pointed out in the last chapter, the utiUty of a thing in 

the estimation of the purchaser is the extreme limit of its exchange 

value : higher the value cannot ascend ; peculiar circumstances 

are required to raise it so high. This topic is happily illustrated by 

//'Mr. De Quincey. " Walk into almost any possible shop, buy the 

* Logic of Political Economy, p. 13, 



DEMAND AND SUPPLY 443 

first article you see ; what will determine its price ? In tlie ninety- \ 
nine cases out of a hundred, simply the element D — difficulty of ] 
attainment. The other element U, or intrinsic utiUty, will be 
perfectly inoperative.' Let the thing (measured by its uses) be, for 
your purposes, worth ten guineas, so that you would rather give ten 
guineas than lose it ; yet, if the difficulty of producing it be only 
worth one guinea, one guinea is the price which it will bear. But 
still not the less, though U is inoperative, can U be supposed absent ? 
By no possibility ; for, if it had been absent, assuredly you would 
not have bought the article even at the lowest price. U acts upon\ 
you, though it does not act upon the price. On the other hand, in ' 
the hundredth case, we will suppose the circumstances reversed : 
you are on Lake Superior in a steam-boat, making your way to an 
unsettled region 800 miles a-head of civilization, and consciously 
with no chance at all of purchasing any luxury whatsoever, Httle 
luxury or big luxury, for the space of ten years to come. One 
fellow-passenger, whom you will part with before sunset, has a 
powerful musical snufi-box ; knowing by experience the power of 
such a toy over your own feelings, the magic with which at times it 
lulls your agitations of mind, you are vehemently desirous to pur- 
chase it. In the hour of leaving London you had forgot to do so ; 
here is a final chance. But the owner, aware of your situation not 
less than yourself, is determined to operate by a strain pushed to 
the very uttermost upon U, upon the intrinsic worth of the article 
in your individual estimate for your individual purposes. He will 
not hear of D as any controlling power or mitigating agency in the 
case ; and finally, although at six guineas a-piece in London or 
Paris you might have loaded a waggon with such boxes, you pay 
sixty rather than lose it when the last knell of the clock has sounded, 
which summons you to buy now or to forfeit for ever. Here, as 
before, only one element is operative ; before it was D, now it is U. 
But after all, D was not absent, though inoperative. The inertness 
of D allowed U to put forth its total effect. The practical com- 
pression of D being withdrawn, U springs up like water in a pump 
when released from the pressure of air. Yet still that D was present 
to your thoughts, though the price was otherwise regulated, is 
evident ; both because U and D must coexist in order to found any 
case of exchange value whatever, and because undeniably you take 
into very particular consideration this D, the extreme difficulty of 
attainment (which here is the greatest possible, viz. an impossibility) 
before you consent to have the price racked up to U. The special 



444 BOOK HI. CHAPTER II. § 2 

D has vanished ; but it is replaced in your thoughts by an un- 
limited D. Undoubtedly you have submitted to U in extremity 
as the regulating force of the price ; but it was under a sense of D'a 
latent presence. Yet D is so far from exerting any positive force, 
that the retirement of D from all agency whatever on the price — 
this it is which creates as it were a perfect vacuum, and through 
that vacuum U rushes up to its highest and ultimate gradation." 
^ This case, in which the value is wholly regulated by the necessities \ \ 
or desires of the purchaser, is the case of strict and absolute monopoly ; JJ 
in which, the article desired being only obtainable from one person, 
he can exact any equivalent, short of the point at which no pur- 
chaser could be found. But it is not a necessary consequence, even 
of complete monopoly, that the value should be forced up to this 
ultimate limit ; as will be seen when we have considered the law 
of value in so far as depending on the other element, difficulty of 
attainment. 

§ 2. The difficulty of attainment which determines value is * 
not always the same kind of difficulty. It sometimes consists in an 
absolute limitation of the supply. There are things of which it is 
physically impossible to increase the quantity beyond certain narrow 
limits. Such are those wines which can be grown only in pecuHar, 
circumstances of soil, cHmate, and exposure. Such also are ancient 
sculptures ; pictures by old masters ; rare books or coins, or other 
articles of antiquarian curiosity. Among such may also be reckoned 
houses and building-ground in a town of definite extent (such as 
Venice, or any fortified town where fortifications are necessary to 
security) ; the most desirable sites in any town whatever ; houses 
and parks pecuHarly favoured by natural beauty, in places where 
that advantage is uncommon. Potentially, all land whatever is a 
commodity of this class ; and might be practically so in countries 
fully occupied and cultivated. 

But there is another category (embracing the majority of all 
things that are bought and sold), in which the obstacle to attain- 
ment consists only in the labour and expense requisite to produce 
the commodity. Without a certain labour and expense it cannot 
be had : but when any one is willing to incur these, there needs be 
no hmit to the multiplication of the product. If there were labourers 
enough and machinery enough, cottons, woollens, or linens might 
be produced by thousands of yards for every single yard now manu- 
factured. There would be a point, no dou4)t, where further increase 



/ 



DEMAND AND SUPPLY M5^ 

would be stopped by the incapacity of the earth to afford more of 
the material. But there is no need, for any purpose of political 
economy, to contemplate a time when this ideal limit could become 
a practical one. 

There is a third case, intermediate between the two preceding, 
and rather more complex, which I shall at present merely indicate, 
but the importance of which in political economy is extremely 
gi'eat. There are commodities which can be multiplied to an in- 
definite extent by labour and expenditure, but not by a fixed amount 
of labour and expenditure. Only a limited quantity can be produced 
at a given cost : if more is wanted, it must be produced at a greater 
cost. To this class, as has been often repeated, agricultural pro- 
duce belongs ; and generally all the rude produce of the eaii:h ; 
and this peculiarity is a source of very important consequences; 
one of which is the necessity of a limit to population ; and another, 
the payment of rent. 

§ 3. These being the three classes, in one or other of which 
all things that are bought and sold must take their place, we shall 
consider them in their order. And first, of things absolutely limited 
in quantity, such as ancient sculptures or pictures. 

Of such things it is commonly said, that their value depends 
upon their scarcity : but the expression is not sufficiently definite 
to serve our purpose. Others say, with somewhat greater precision, 
that the value depends on the demand and the supply. But even 
this statement requires much explanation, to make it a clear exponent 
of the relation between the value of a thing, and the causes of which 
that value is an effect. 
y The supply of a commodity is an intelligible expression : it means 
the quantity offered for sale ; the quantity that is to be had, at a 
given time and place, by those who wish to purchase it. But what 
is meant by the demand ? Not the mere desire for the commodity. 
A beggar may desire a diamond ; but his desire, however great, will 
have no influence on the price. Writers have therefore given a more 
limited sense to demand, and have defined it, the wish to possess, 
combined with the power of purchasing. To distinguish demand 
in this technical sense, from the demand which is synonymous 
with desire, they call the former effectual demand.* After this 

* Adam Smith, who introduced the expression "effectual demand," em- 
ployed it to dei\ote the demand of those who are willing and able to give for 
the commodity what he calls its natural price, that is the price which will 



446 BOOK III. CHAPTER II. § 4 

explanation, it is usually supposed tliat there remains no further 
difficulty, and that the value depends upon the ratio between the 
effectual demand, as thus defined, and the supply. 

These phrases, however, fail to satisfy any one who requires 
clear ideas, and a perfectly precise expression of them. Some 
confusion must always attach to a phrase so inappropriate as that 
of a ratio between two things not of the same denomination. What 
ratio can there be between a quantity and a desire, or even a desire 
combined with a power ? A ratio between demand and supply is 
only intelHgible if by demand we mean the quantity demanded, and 
if the ratio intended is that between the quantity demanded and 
the quantity suppUed. But again, the quantity demanded is not a 
fixed quantity, even at the same time and place ; it varies according 
to the value ; if the thing is cheap, there is usually a demand for 
more of it than when it is dear. The demand, therefore, partly 
depends on the value. But it was before laid down that the value 
depends on the demand. From this contradiction how shall we 
extricate ourselves ? How solve the paradoXj of two things, each 
depending upon the other ? 

Though the solution of these difficulties is obvious enough, the 
difficulties themselves are not fanciful ; and I bring them forward 
thus prominently, because I am certain that they obscurely haunt 
every inquirer into the subject who has not openly faced and 
distinctly reaUzed them. Undoubtedly the true solution must 
have been frequently given, though I cannot call to mind any one 
who had given it before myself, except the eminently clear thinker 
and skilful expositor, J. B. Say. I should have imagined, however, 
that it must be familiar to all political economists, if the writings of 
several did not give evidence of some want of clearness on the 
point, and if the instance of Mr. De Quincey did not prove that the 
complete non-recognition and impHed denial of it are compatible 
with great intellectual ingenuity, and close intimacy with the subject 
matter. 

§ 4. Meaning, by the word demand, the quantity demanded, and 
remembering that this is not a fixed quantity, but in general varies 
according to the value, let us suppose that the demand at some 
particular time exceeds the supply, that is, there are persons ready to 
buy, at the market value, a greater quantity than is offered for sale. 

enable it to be permanently produced and brought to market. — See hia ohaptei 
on Natural and Market Price (book i. ch. 7). 



DEMAND AND SUPPLY 447 

Competition takes place on tlie side of the buyers, and the value 
rises : but how much ? In the ratio (some may suppose) of the 
deficiency : if the demand exceeds the supply by one-third, the value 
rises one-third. By no means : for when the value has risen 
one-third, the demand may still exceed the supply ; there may, 
even at that higher value, be a greater quantity wanted than is to 
be had ; and the competition of buyers may still continue. If 
the article is a necessary of hfe, which, rather than resign, people 
are wilHng to pay for at any price, a deficiency of one-third may 
raise the price to double, triple, or quadruple.* Or, on the contrary, 
the competition may cease before the value has risen in even the 
proportion of the deficiency. A rise, short of one- third, may place the 
article beyond the means, or beyond the inchnations, of purchasers 
to the full amount. At what point, then, will the rise be arrested ? 
At the point, whatever it be, which equalizes the demand and the 
supply : at the price which cuts off the extra third from the demand, 
or brings forward additional sellers sufficient to supply it. When, 
in either of these ways, or by a combination of both, the demand 
becomes equal and no more than equal to the supply, the rise of 
value will stop. 

The converse case is equally simple. Instead of a demand 
beyond the supply, let us suppose a supply exceeding the demand. 
The competition will now be on the side of the sellers : the extra 
quantity can only find a market by calling forth an additional demand 
equal to itself. This is accomplished by means of cheapness ; the 
value falls, and brings the article within the reach of more numerous 
customers, or induces those who were already consumers to make 
increased purchases. The fall of value required to re-establish 
equahty is different in different cases. The kinds of things in which 
it is commonly greatest are at the two extremities of the scale ; 
absolute necessaries, or those pecuHar luxuries, the taste for which 
is confined to a small class. In the case of food, as those who have 
already enough do not require more on account of its cheapness, but 
rather expend in other things what they save in food, the increased 
consumption occasioned by cheapness carries off, as experience 

* " The price of corn in this country has risen from 100 to 200 per cent and 
upwards, when the utmost computed deficiency of the crops has not been more 
than between one- sixth and one- third below an average, and when that deficiency 
has been relieved by foreign supplies. If there should be a deficiency of the 
crops amounting to one-third, without any surplus from a former year, and 
without any chance of relief by importation, the price might rise five, six, or 
even tenfold," — Tooke's History of Prices, vol. i. pp. 13-5. 



448 BOOK III. CHAPTER II. § 6 

shows, only a small part of the extra supply caused by an abundant 
Harvest ; * and the fall is practically arrested only when the farmers 
withdraw their corn, and hold it back in hopes of a higher price ; 
or by the operations of speculators who buy corn when it is cheap, 
and store it up to be brought out when more urgently wanted. 
Whether the demand and supply are equalized by an increased 
demand, the result of cheapness, or by -withdrawing a part of the 
supply, equalized they are in either case. 

Thus we see that the idea of a ratiOy as between demand and 
supply, is out of place, and has no concern in the matter : the 
proper mathematical analogy is that of an equation. Demand and 
supply, the quantity demanded and the quantity supplied, will be 
made equal. If unequal at any moment, competitid.n equalizes 
them, and the manner in which this is done is by an adjustment 
of the value. If the demand increases, the value rises ; if the demand 
diminishes, the value falls : again, if the supply falls off, the value 
rises ; and falls if the supply is increased. The rise, or the fall 
continues until the demand and supply are agaih equial to one 
another : and the value which a commodity will bring in any 
market is no other than the value which, in that market, gives a 
demand just sufficient to carry ofi the existing or expected supply. 

This, then, is the Law of Value, with respect to all commodities 
not susceptible of being multiplied at pleasure. Such commodities, 
no doubt, are exceptions. There is another law for that much 
larger class of things, which admit of indefinite multiplication. But 
it is not the less necessary to conceive distinctly and grasp firmly 
the theory of this exceptional case. In the first place, it will be 
found to be of great assistance in rendering the more common case 
intelligible. And in the next place, the principle of the exception 
stretches wider, and embraces more cases, than might at first be 
supposed. 

§ 5. There are but few commodities which are naturally and 
necessarily limited in supply. But any commodity whatever may 
be artificially so. Any commodity may be the subject of a mono- 
poly : like tea, in this country, up to 1834: ; tobacco in France, 
opium in British India, at present [1848]. The price of a monopolized 
commodity is commonly supposed to be arbitrary ; depending on 
the will of the monopolist, and limited only (as in Mr. De Quincey's 

* See Tooke, and the Report of the Agricultural Committee of 1821, 



DEMAND AND SUPPLY 449 

case of the musical box in the wilds of America) by the buyer's extreme 
estimate of its worth to himself. This is in one sense true, but forms 
no exception, nevertheless, to the dependence of the value on 
supply and demand. The monopoHst can fix the value as high as 
he pleases, short of what the consumer either could not or would 
not pay ; but he can only do so by limiting the supply. The Dutch 
East India Company obtained a monopoly price for the produce 
of the Spice Islands, but to do so they were obliged, in good seasons, 
to destroy a portion of the crop. Had they persisted in selling all 
that they produced, they must have forced a market by reducing the 
price, so low, perhaps, that they would have received for the larger 
quantity a less total return than for the smaller : at least they 
showed that such was their opinion by destroying the surplus. 
Even on Lake Superior, Mr. De Quincey's huckster could not have 
sold his box for sixty guineas, if he had possessed two musical 
boxes and desired to sell them both. Supposing the cost price of 
each to be six guineas, he would have taken seventy for the two in 
preference to sixty for one ; that is, although his monopoly was 
the closest possible, he would have sold the boxes at thirty-five 
guineas each, notwithstanding that sixty was not beyond the buyer's 
estimate of the article for his purposes. Monopoly value, therefore,! 
does not depend on any pecuHar principle, but is a mere variety of the! 
ordinary case of demand and supply. 

Again, though there are few commodities which are at all times 
and for ever unsusceptible of increase of supply, any commodity 
whatever may be temporarily so ; and with some commodities this 
is habitually the case. Agricultural produce, for example, cannot 
be increased in quantity before the next harvest ; the quantity of 
corn already existing in the world is all that can be had for some- 
times a year to come. During that interval corn is practically 
assimilated to things of which the quantity cannot be increased. 
In the case of most commodities, it requires a certain time to increase 
their quantity; and if the demand increases, then, until a correspond- 
ing supply can be brought forward, that is, until the supply can 
accommodate itself to the demand, the value will so rise as to 
accommodate the demand to the supply. 

There is another case, the exact converse of this. There are 
some articles of which the supply may be indefinitely increased, 
but cannot be rapidly diminished. There are things so durable 
that the quantity in existence is at all times very great in com- 
parison with the annual produce. Gold, and the more durable 

Q 



450 BOOK III. CHAPTER II. § 5 

metals, are things of this sort ; and also houses. The supply of 
such things might be at once diminished by destroying them ; 
but to do this could only be the interest of the possessor if he had 
a monopoly of the article, and could repay himself for the destruction 
of a part by the increased value of the remainder. The value, there- 
fore, of such things may continue for a long time so low, either from 
excess of supply or falUng ofi in the demand, as to put a complete 
stop to further production ; the diminution of supply by wearing 
out being so slow a process, that a long time is requisite, even under 
a total suspension of production, to restore the original value. 
During that interval the value will be regulated solely by supply and 
demand, and will rise very gradually as the existing stock wears out, 
until there is again a remunerating value, and production resumes 
its course. 

Finally, there are commodities of which, though capable of 
being increased or diminished to a great, and even an unlimited 
extent, the value never depends upon anything but demand and 
supply. This is the case, in particular, with the commodity Labour ; 
of the value of which we have treated copiously in the preceding Book : 
and there are many cases besides, in which we shall find it necessary to 
call in this principle to solve difficult questions of exchange value. 
This will be particularly exemplified when we treat of International 
Values ; that is, of the terms of interchange between things produced 
in different countries, or, to speak more generally, in distant places. 
But into these questions we cannot enter, until we shall have 
examined the case of commodities which can be increased in quantity 
indefinitely and at pleasure ; and shall have determined by what 
law, other than that of Demand and Supply, the permanent or 
average values of such commodities are regulated. This we shall 
do in the next chapter. 



CHAPTER III 

OF COST OF PRODUCTION, IN ITS RELATION TO VALUE 

§ 1. When tlie production of a commodity is the effect of 
labour and expenditure, whether the commodity is susceptible 
of unlimited multipUcation or not, there is a minimum value which 
is the essential condition of its being permanently produced. The 
value at any particular time is the result of supply and demand ; 
and is always that which is necessary to create a market for the 
existing supply. But unless that value is sufficient to repay 
the Cost of Production, and to afford, besides, the ordinary expecta- 
tion of profit, the commodity will not continue to be produced. 
CapitaHsts will not go on permanently producing at a loss. They 
will not even go on producing at a profit less than they can live on. 
Persons whose capital is already embarked, and cannot be easily 
extricated, will persevere for a considerable time without profit, and 
have been known to persevere even at a loss, in hope of better times. 
But they will not do so indefinitely, or when there is nothing to indicate 
that times are Hkely to improve. No new capital will be invested 
in an employment, unless there be an expectation not only of some 
profit, but of a profit as great (regard being had to the degree of 
eUgibility of the employment in other respects) as can be hoped 
for in any other occupation at that time and place. When such 
profit is evidently not to be had, if people do not actually withdraw 
their capital, they at least abstain from replacing it when consumed. 
The cost of production, together with the ordinary profit, may there- 
fore be called the necessary price, or value, of all things made by 
labour and capital. Nobody willingly produces in the prospect 
of loss. Whoever does so, does it under a miscalculation, which 
he corrects as fast as he is able. 

When a commodity is not only made by labour and capital, 
but can be made by them in indefinite quantity, this Necessary 
Value, the minimum with which the producers will be content, ia 



452 BOOK HI. CHAPTER 111. § 1 

Ialso, if competition is free and active, the maximum which they 
can expect. If the value of a commodity is such that it repays the 
cost of production not only with the customary, but with a higher 
rate of profit, capital rushes to share in this extra gain, and by 
increasing the supply of the article, reduces its value. This is not 
a mere supposition or surmise, but a fact familiar to those conversant 
with commercial operations. Whenever a new line of business 
presents itself, offering a hope of unusual profits, and whenever 
any established trade or manufacture is believed to be yielding a 
greater profit than customary, there is sure to be in a short time so 
large a production or importation of the commodity, as not only 
destroys the extra profit, but generally goes beyond the mark, 
and sinks the value as much too low as it had before been raised 
too high ; until the over-supply is corrected by a total or partial 
suspension of further production. As already intimated,* these 
variations in the quantity produced do not presuppose or require 
that any person should change his employment. Those whose 
business is thriving, increase their produce by availing themselves 
more largely of their credit, while those who are not making the 
ordinary profit, restrict their operations, and (in manufacturing 
phrase) work short time. In this mode is surely and speedily 
effected the equalization, not of profits perhaps, but of the expecta- 
tions of profit, in different occupations. 

As a general rule, then, things tend to exchange for one another at 

\ such values as will enable each producer to be repaid the cost of 

ii^ \ production with the ordinary profit ; in other words, such as will 

'give to all producers the same rate of profit on their outlay. But 

in order that the profit may be equal where the outlay, that is, the 

cost of production, is equal, things must on the average exchange 

for one another in the ratio of their cost of production : things 

^of_which the cost of production is the same, must be of the same 
value. For only thus will an equal outlay yield an equal return. 
If a farmer with a capital equal to 1000 quarters of corn, can produce 
1200 quarters, yielding him a profit of 20 per cent ; whatever 
else can be produced in the same time by a capital of 1000 quarters 
must be worth, that is, must exchange for, 1200 quarters, otherwise 
the producer would gain either more or less than 20 per cent. 

Adam Smith and Ricardo have called that value of a thing 
which is proportional to its cost of production, its Natural Value 

* Supra, p. 412. 



COST OF PRODUGTION 45S 

(or its Natural Price). They meant by this, the point about which I 
the value oscillates, and to which it always tends to return ; the I 
centee value, towards which, as Adam Smith expresses it, the market ] 
value of a thing is constantly y^avitating ; and any deviation 
from which is but a temporary irregularity, which, the moment 
it exists, sets forces in motion tending to correct it. On an average 
of years sufficient to enable the oscillations on one side of the central 
line to be compensated by those on the other, the market value 
agrees with the natural value ; but it very seldom coincides exactly 
with it at any particular time. The sea everywhere tends to a level ; 
but it never is at an exact level ; its surface is always ruffled by 
waves, and often agitated by storms. It is enough that no point, 
at least in the open sea, is permanently higher than another. Each 
place is alternately elevated and depressed ; but the ocean preserves 
its level. 

§ 2. /(The latent influence by which the values of things are ii 
made to conform in the long run to the cost of production is the | 
variation that would otherwise take place in the supply of the I 
commodity./^ The supply would be increased if the thing continued » 
to sell above the ratio of its cost of production, and would be 
diminished if it fell below that ratio. But we must not therefore 
suppose it to be necessary that the supply should actually be either 
diminished or increased. Suppose that the cost of production of 
a thing is cheapened by some mechanical invention, or increased 
by a tax. The value of the thing would in a Httle time, if not 
immediately, fall in the one case, and rise in the other ; and it 
would do so, because, if it did not, the supply would in the one 
case be increased, until the price fell, in the other diminished, until 
it rose. For this reason, and from the erroneous notion that value 
depends on the proportion between the demand and the supply, 
many persons suppose that this proportion must be altered whenever 
there is any change in the value of the commodity ; that the value 
cannot fall through a diminution of the cost of production, unless 
the supply is permanently increased ; nor rise, imless the supply is 
permanently diminished. But this is not the fact : there is no 
need that there should be any actual alteration of supply ; and 
when there is, the alteration, if permanent, is not the cause, but 
the consequence of the alteration in value. If, indeed, the supply 
could not be increased, no diminution in the cost of production 
would lower the value : but there is by no means any necessity 



454 B00:& HI. CHAPTER Itt § ^ 

, that it should. The mere possibility often suffices ; the dealers 
are aware of what would happen, and their mutual competition 
makes them anticipate the result by lowering the price. Whether 
there will be a greater permanent supply of the commodity after its 
production has been cheapened, depends on quite another question, 
namely, on whether a greater quantity is wanted at the reduced 
value. Most commonly a greater quantity is wanted, but not 
necessarily. " A man," says Mr. De Quincey,* " buys an article of 
instant applicability to his own purposes the more readily and the 
more largely as it happens to be cheaper. Silk handkerchiefs having 
fallen to half-price, he will buy, perhaps, in threefold quantity ; but 
he does not buy more steam-engines because the price is lowered. 
His demand for steam-engines is almost always predetermined by 
the circumstances of his situation. So far as he considers the cost 
at all, it is much more the cost of working this engine than the cost 
upon its purchase. But there are many articles for which the 
market is absolutely and merely limited by a pre-existing system^ 
to which those articles are attached as subordinate parts or members. 
How could we force the dials or faces of timepieces by artificial 
cheapness to sell more plentifully than the inner works or movements 
of such timepieces ? Could the sale of wine-vaults be increased 
without increasing the sale of wine ? Or the tools of shipwrights find 
an enlarged market whilst shipbuilding was stationary ? . . . . OSer^ 
to a town of 3000 inhabitants a stock of hearses, no cheapness will 
tempt that town into buying more than one. Offer a stock of 
yachts, the chief cost lies in manning, victualHng, repairing ; no 
diminution upon the mere price to a purchaser will tempt into the 
market any man whose habits and propensities had not already 
disposed him to such a purchase. So of professional costume for 

\ bishops, lawyers, students at Oxford." Nobody doubts, however, 
that the price and value of all these things would be eventually 
lowered by any diminution of their cost of production ; and lowered 
through the apprehension entertained of new competitors, and an 
increased supply ; though the great hazard to which a new com- 
petitor would expose himself, in an article not susceptible of any 
considerable extension of its market, would enable the estabhshed 
dealers to maintain their original prices much longer than they 
could do in an article offering more encouragement to competition. 
Again, reverse the case, and suppose the cost of production 

* Logic of Political Economy, pp. 230-1. 



COST OF PRODUCTION 455 

increased, as for example by laying a tax on the commodity. The 
value would rise ; and that, probably, immediately. Would the 
supply be diminished ? Only if the increase of value diminished 
the demand. Whether this effect followed, would soon appear, and 
if it did, the value would recede somewhat, from excess of supply, 
until the production was reduced, and would then rise again. 
There are many articles for which it requires a very considerable 
rise of price materially to reduce the demand ; in particular, 
articles of necessity, such as the habitual food of the people in England, 
wheaten bread : of which there is probably almost as much consumed, 
at the present cost price, as there would be with the present popula- 
tion at a price considerably lower. Yet it is especially in such things 
that dearness or high price is popularly confounded with scarcity. 
Food may be dear from scarcity, as after a bad harvest ; but the 
dearness (for example) which is the effect of taxation, or of corn 
laws, has nothing whatever to do with insufficient supply : such 
causes do not much diminish the quantity of food in a country : it is 
other things rather than food that are diminished in quantity by 
them, since, those who pay more for food not having so much to 
expend otherwise, the production of other things contracts itself 
to the nmits of a smaller demand. 

It is, therefore, strictly correct to say, that the value of things 
which can be increased in quantity at pleasure, does not depend 
(except accidentally, and during the time necessary for production 
to adjust itself,) upon demand and supply ; on the contrary, demand 
and supply depend upon it. There is a demand for a certain 
quantity of the commodity at its natural or cost value, and to 
that the supply in the long run endeavours to conform. When at 
any time it fails of so conforming, it is either from miscalculation, 
or from a change in some of the elements of the problem : either 
in the natural value, that is, in the cost of production ; or in the 
demand, from an alteration in pubHc taste or in the number or 
wealth of the consumers. These causes of disturbance are very 
liable to occur, and when any one of them does occur, the market 
value of the article ceases to agree with the natural value. The real 
law of demand and supply, the equation between them, still holds 
good : if a value different from the natural value be necessary to 
make the demand equal to the supply, the market value wiU deviate 
from the natural value ; but only for a time ; for the permanent 
tendency of supply is to conform itself to the demand which is found 
by experience to exist for the commodity when selling at its natmal 



456 BOOK III. CHAPTER III. § 2 

value. If tlie supply is either more or less than this, it is so 
accidentally, and affords either more or less than the ordinary rate 
of profit ; which, under free and active competition, cannot long 
continue to be the case. 

To recapitulate : demand and supply govern the value of all 
things which cannot be indefinitely increased ; except that even 
for them, when produced by industry, there is a minimum value, 
determined by the cost of production. But in all things which 
admit of indefinite multiplication, demand and supply only 
determine the perturbations of value, during a period which cannot 
exceed the length of time necessary for altering the supply. While 
thus ruHng the oscillations of value, they themselves obey a superior 
force, which makes value gravitate towards Cost of Production, 
and which would settle it and keep it there, if fresh disturbing in- 
fluences were not continually arising to make it again deviate. To 
pursue the same strain of metaphor, demand and supply always 
rush to an equiHbrium, but the condition of stable equihbrium is 
when things exchange for each other according to their cost of 
production, or, in the expression we have used, when things are at 
their Natural Value. 



CHAPTER IV 

ULTIMATE ANALYSIS OF COST OF PRODUCTION 

§ 1. The component elements of Cost of Production have 
been set forth in the First Part of this enquiry.* The principal oi 
them, and so much the principal as to be nearly the sole, we found 
to be Labour. What the production of a thing costs to its producer, 
or its series of producers, is the l^-bour expended in producing it 
If we consider as the producer the capitaHst who makes the advances, 
the word Labour may be replaced by the word Wages : what the 
produce costs to him, is the wages which he has had to pay. At the 
first glance indeed this seems to be only a part of his outlay, since 
he has not only paid wages to labourers, but has likewise provided 
them with tools, materials, and perhaps buildings. These tools, 
materials, and buildings, however, were produced by labour and 
capital ; and their value, hke that of the article to the production 
of which they are subservient, depends on cost of production, which 
again is resolvable into labour. The cost of production of broad- 
cloth does not wholly consist in the wages of weavers ; which alone 
are directly paid by the cloth manufacturer. It consists also of 
the wages of spinners and woolcombers, and, it may be added, 
of shepherds, all of which the clothier has paid for in the price of 
yarn. It consists too of the wages of builders and brickmakers, 
which he has reimbursed in the contract price of erecting his factory. 
It partly consists of the wages of machine-makers, iron-founders, 
and miners. And to these must be added the wages of the carriers 
who transported any of the means and apphances of the production 
to the place where they were to be used, and the product itself to 
the place where it is to be sold. 

The value of commodities, therefore, depends principally (we 
shall presently see whether it depends solely) on the quantity of 

* Supra, pp. 29-31. 



158 BOOK in. CHAPTER I?. § 1 

labour required for their production ; including in the idea of 
production, that of conveyance to the market. *' In estimating," says 
Ricardo,* " the exchangeable value of stockings, for examplejjc,^ shall 
find that their value, comparatively with other things, depends on 
the total quantity of labour necessary to manufacture them and 
bring them to market. 2' First, there is the labour necessary to 
cultivate the land on which the raw cotton is grown ; secondly, the 
labour of conveying the cotton to the country where the stockings 
are to be manufactured, which includes a portion of the labour 
bestowed in building the ship in which it is conveyed, and which is 
charged in the freight of the goods ; thirdly, the labour of the 
spinner and weaver ; fourthly, a portion of the labour of the engineer, 
smith, and carpenter, who erected the buildings and machinery by 
the help of which they are made ; fifthly, the labour of the retail 
dealer and of many others, whom it is unnecessary further to 
particularize. The aggregate sum of these various kinds of labour 
determines the quantity of other things for which these stockings 
will exchange, while the same consideration of the various quantities 
of labour which have been bestowed on those other things, will 
equally govern the portion of them which will be given for the 
stockings. 

" To convince ourselves that this is the real foundation of 
exchangeable value, let us suppose any improvement to be made 
in the means of abridging labour in any one of the various processes 
through which the raw cotton must pass before the manufactured 
stockings come to the market to be exchanged for other things ; 
and observe the effects which will follow. If fewer men were 
required to cultivate the raw cotton, or if fewer sailors were employed 
in navigating, or shipwrights in constructing, the ship in which 
it was conveyed to us ; if fewer hands were employed in raising 
the buildings and machinery, or if these, when raised, were rendered 
more efficient ; the stockings would inevitably fall in value, and 
command less of other things. They would fall, because a less 
quantity of labour was necessary to their production, and would 
therefore exchange for a smaller quantity of those things in which 
no such abridgement of labour had been made. 

" Economy in the use of labour never fails to reduce the relative 
value of a commodity, whether the saving be in the labour necessary 
to the manufacture of the commodity itself, or in that necessary to 

* Principles of Political Economy and Taxation, ch. i. sect. 3* 



ULTIMATE ANALYSIS OF COST OF PRODUCTION 459 

tlie formation of the capital, by the aid of which it is produced. In 
either case the price of stockings would fall, whether there were fewer 
men employed as bleachers, spinners, and weavers, persons im- 
mediately necessary to their manufacture : or as sailors, carriers, 
engineers, and smiths, persons more indirectly concerned. In the 
one case, the whole saving of labour would fall on the stockings, 
because that portion of labour was wholly confined to the stockings ; 
in the other, a portion only would fall on the stockings, the remainder 
being applied to all those other commodities, to the production of 
which the buildings, machinery, and carriage, were subservient." 

§ 2. It will have been observed that Kicardo expresses himself \ 
as if the quantity of labour which it costs to produce a commodity i 
and bring it to market, were the only thing on which its value ^ 
depended. But since the cost of production to the capitalist is not 
labour but wages, and since wages may be either greater or less, 
the quantity of labour being the same ; it would seem that [the 
value of the product cannot be determined solely by the quantity 
ofjabourlbut by the quantity together with the remuneration ; and 
that values must partly depend on wages. 

In order to decide this point, it must be considered, that value 
is a relative term : that the value of a commodity is not a name for 
an inherent and substantive quality of the thing itself, but means 
the quantity of other things which can be obtained in exchange for 
it. The value of one thing must always be understood relatively to 
some other thing, or to things in general. Now the relation of one 
thing to another cannot be altered by any cause which affects them 
both ahke. A rise or fall of general wages is a fact which affects all 
commodities in the same manner, and therefore affords no reason 
why they should exchange for each other in one rather than in 
another proportion. To suppose that high wages make high 
values, is to suppose that there can be such a thing as general high 
values. But this is a contradiction in terms : the high value of 
some things is synonymous with the low value of others. The 
mistake arises from not attending to values, but only to prices. 
Though there is no such thing as a general rise of values, there 
is such a thing as a general rise of prices. As soon as we form 
distinctly the idea of values, we see that high or low wages can 
have nothing to do with them ; but that high wages make high 
prices, is a popular and widely-spread opinion. The whole amount 
of error involved in this proposition can only be seen thoroughly 



460 BOOK III. CHAPTER IV. § 3 

when we come to the theory of money ; at present we need only say 
that, if it be true, there can be no such thing as a real rise of wages ; 
for if wages could not rise without a proportional rise of the price 
of everything, they could not, for any substantial purpose, rise at all. 
This surely is a sufficient reductio ad ahsurdum, and shows the 
amazing folly of the propositions which may and do become, and 
long remain, accredited doctrines of popular political economy. 
It must be remembered too that general high prices, even supposing 
them to exist, can be of no use to a producer or dealer, considered 
as such ; for if they increase his money returns, they increase in the 
same degree all his expenses. There is no mode in which capitahsts 
can compensate themselves for a high cost of labour, through any 
action on values or prices. It cannot be prevented from taking its 
effect on low profits. If the labourers really get more, that is, get 
the produce of more labour, a smaller percentage must remain for 
profit. From this Law of Distribution, resting as it does on a law 
of arithmetic, there is no escape. The mechanism of Exchange and 
Price may hide it from us, but is quite powerless to alter it. 

§ 3. Although, however, general wages, whether high or low, 
do not affect values, yet if wages are higher in one employment than 
another, or if they rise and fall permanently in one employment 
without doing so in others, these inequalities do really operate upon 
values. The causes which make wages vary from one employment 
to another, have been considered in a former chapter. When the 
wages of an employment permanently exceed the average rate, the 
value of the thing produced will, in the same degree, exceed the 
standard determined by mere quantity of labour. Things, for 
example, which are made by skilled xabour, exchange for the produce 
of a much greater quantity of unskilled la Dour ; for no reason but 
because the labour is more highly paid. If, through the extension of 
education, the labourers competent to skilled employments were so 
increased in number as to diminish the difference between their 
wages and those of common labour, all things produced by labour 
of the superior kind would fall in value, compared with things 
produced by common labour, and these might be said therefore 
to rise in value. We have before remarked that the difficulty of 
passing from one class of employments to a class greatly superior, 
has hitherto caused the wages of all those classes of labourers who 
are separated from one another by any very marked barrier, to 
depend more than might be supposed upon tlie increase of t|ie 



ULTlMATJi; AiNALYSiS Ob' UOST OF FKUDUUnjm JCT^ 

population of each class considered separately ; and that the in- 
equalities in the remuneration of labour are much greater than 
could exist if the competition of the labouring people generally 
could be brought practically to bear on each particular employment. 
It follows from this that wages in different employments do not rise 
or fall simultaneously, but are, for short and sometimes even for 
long periods, nearly independent of one another. All such disparities 
evidently alter the relative costs of production of different com- 
modities, and will therefore be completely represented in their 
natural or average value. 

It thus appears that the maxim laid down by some of the best 
political economists, that wages do not enter into value, is expressed 
with greater latitude than the truth warrants, or than accords with 
their own meaning. Wages do enter into value. jThe relative 
wages of the labour necessary for producing different ^mmodities, 
affect their value just as much as the relative quantities of labour. 
It is true, the absolute wages paid have no effect upon values ; but 
neither has the absolute quantity of labour. If that were to vary 
simultaneously and equally in all commodities, values would not 
be affected. If, for instance, the general efficiency of all labour 
were increased, so that all things without exception could be pro- 
duced in the same quantity as before with a smaller amount of 
labour, no trace of this general diminution of cost of production 
would show itself in the values of commodities. Any change 
which might take place in them would only represent the unequal 
degrees in which the improvement affected different things ; and 
would consist in cheapening those in which the saving of labour had 
been the greatest, while those in which there had been some, but 
a less saving of labour, would actually rise in value. In strictness, 
therefore, wages of labour have as much to do with value as quantity 
of labour : and neither Kicardo nor any one else has denied the 
fact. In considering, however, the causes of variations in value, 
quantity of labour is the thing of chief importance ; for when that 
varies, it is generally in one or a few commodities at a time, but the 
variations of wages (except passing fluctuations) are usuaUy general, 
and have no considerable effect on value. 

§ 4. Thus far of labour, or wages, as an element in cost of 
production. But in our analysis, in the First Book, of the requisites 
of production, we found that there is another necessary element in 
it besides labour. There is also capital ; and this being the result 



of abstinence, tlie produce, or its value, must be sufficient to re- 
munerate, not only all the labour required, but the abstinence of 
all the persons by whom the remuneration of the different classes 
of labourers was advanced. The return for abstinence is Profit. 
And profit, we have also seen, is not exclusively the surplus remain- 
ing to the capitalist after he has been compensated for his outlay, 
but forms, in most cases, no unimportant part of the outlay itself. 
The flax-spinner, part of whose expenses consists of the purchase 
of flax and of machinery, has had to pay, in their price, not only the 
wages of the labour by which the flax was grown and the machinery 
made, but the profits of the grower, the flax-dresser, the miner, the 
iron-founder, and the machine-maker. All these profits, together 
with those of the spinner himself, were again advanced by the 
weaver, in the price of his material, linen yarn : and along with 
them the profits of a fresh set of machine-makers, and of the miners 
and iron-workers who supplied them with their metallic material. 
All these advances form part of the cost of production of linen. 
Profits, therefore, as well as wages, enter into the cost of production 
which determines the value of the produce. 

Value, however, being purely relative, cannot depend upon 
absolute profit, no more than upon absolute wages, but upon 
relative profits only. High general profits cannot, any more than 
high general wages, be a cause of high values, because high general 
values are an absurdity and a contradiction. In so far as profits 
enter into the cost of production of all things, they cannot affect the 
value of any. It is only by entering in a greater degree into the 
cost of production of some things than of others, that they can have 
any influence on value. 

For example, we have seen that there are causes which necessitate 
a permanently higher rate of profit in certain employments than in 
others. There must be a compensation for superior risk, trouble, 
and disagreeableness. This can only be obtained by selling the 
commodity at a value above that which is due to the quantity of 
labour necessary for its production. If gunpowder exchanged for 
other things in no higher ratio than that of the labour required from 
first to last for producing it, no one would set up a powder-mill. 
Butchers are certainly a more prosperous class than bakers, and do 
not seem to be exposed to greater risks, since it is not remarked that 
they are oftener bankrupts. They seem, therefore, to obtain higher 
profits, which can only arise from the more limited competition 
parsed by the unpleasantness, and to a^ certain degree, tl^e 



ULTIMATE ANALYSIS OF COST OF PRODUCTION 463 

unpopularity, of their trade. But this higher profit implies that 
they sell their commodity at a higher value than that due to 
their labour and outlay. All inequalities of profit which are 
necessary and permanent, are represented in the relative values of 
the commodities. 

§ 5. Profits, however, may enter more largely into the con- 
ditions of production of one commodity than of another, even 
though there be no difierence in the rate of profit between the two 
employments. The one commodity may be called upon to yield 
profit during a longer period of time than the other. The example 
by which this case is usually illustrated is that of wine. Suppose 
a quantity of wine, and a quantity of cloth, made by equal amounts 
of labour, and that labour paid at the same rate. The cloth does 
not improve by keeping ; the wine does. Suppose that, to attain 
the desired quality, the wine requires to be kept five years. The 
producer or dealer will not keep it, unless at the end of five years he 
can sell it for as much more than the cloth as amounts to five years' 
profit, accumulated at compound interest. The wine and the cloth 
were made by the same original outlay. Here then is a case in 
which the natural values, relatively to one another, of two com- 
modities, do not conform to their cost of production alone, but to 
their cost of production flus something else. Unless, indeed, for 
the sake of generahty in the expression, we include the profit which 
the wine-merchant foregoes during the five years, in the cost of 
production of the wine : looking upon it as a kind of additional 
outlay, over and above his other advances, for which outlay he 
must be indemnified at last. 

All commodities made by machinery are assimilated, at least 
approximately, to the wine in the preceding example. In com- 
parison with things made wholly by immediate labour, profits 
enter more largely into their cost of production. Suppose two 
commodities, A and B, each requiring a year for its production, 
by means of a capital which we will on this occasion denote by 
money, and suppose to be lOOOL A is made wholly by immediate 
labour, the whole lOOOZ. being expended directly in wages. B is made 
by means of labour which costs 500L and a machine which cost 500Z., 
and the machine is worn out by one year's use. The two com- 
modities will be exactly of the same value ; which, if computed in 
money, and if profits are 20 per cent per annum, will be 1200?. But 
of this 1200Z., in the case of A, only 200/., or one-sixth, is profit : 



i6i . BOOK: ilt. CHAPTilR IV. § 6 

while in the case of B there is not only the 2001., but as much of 
500?. (the price of the machine) as consisted of the profits of the 
machine-maker ; which, if we suppose the machine also to have 
taken a year for its production, is again one-sixth. So that in the 
case of A only one-sixth of the entire return is profit, whilst in B the 
element of profit comprises not only a sixth of the whole, but an 
additional sixth of a large part. 

The greater the proportion of the whole capital which consists 
of machinery, or buildings, or material, or anything else which must 
be provided before the immediate labour can commence, the more 
largely will profits enter into the cost of production. It is equally 
true, though not so obvious at first sight, that greater durabihty 
in the portion of capital which consists of machinery or buildings, 
has precisely the same effect as a greater amount of it. As we 
just supposed one extreme case, of a machine entirely worn out by 
a year's use, let us now suppose the opposite and still more extreme 
case of a machine which lasts for ever, and requires no repairs. In 
this case, which is as well suited for the purpose of illustration as 
if it were a possible one, it will be unnecessary that the manufacturer 
should ever be repaid the 500L which he gave for the machine, 
since he has always the machine itself, worth 500/. ; but he must be 
paid, as before, a profit on it. The commodity B, therefore, which 
in the case previously supposed was sold for 1200?. of which sum 
lOOOL were to replace the capital and 2001. were profit, can now be 
sold for 700?., being 500Z to replace wages, and 200?. profit on the 
entire capital. Profit, therefore, enters into the value of B in the 
ratio of 200?. out of 700?., being two-sevenths of the whole, or 
28^ per cent, while in the case of A, as before, it enters only in the 
ratio of one-sixth, or 16f per cent. The case is of course purely 
ideal, since no machinery or other fixed capital lasts for ever ; but 
the more durable it is, the nearer it approaches to this ideal case, 
and the more largely does profit enter into the return. If, for 
instance, a machine worth 500?. loses one-fifth of its value by each 
year's use, 100?. must be added to the return to make up this loss, 
and the price of the commodity will be 800?. Profit therefore will 
enter into it in the ratio of 200?. to 800?., or one-fourth, which is 
still a much higher proportion than one-sixth, or 200?. in 1200?., as 
in case A. 

From the unequal proportion in which, in different employments, 
profits enter into the advances of the capitalist, and therefore into 
the returns required by him, two consequences follow in regard to 



ULTIMATE ANALYSIS OF COST OF PHODUCTION 465 

value. One is, that commodities do not exchange in the ratio 
simply of the quantities of labour required to produce them ; not 
even if we allow for the unequal rates at which different kinds of 
labour are permanently remunerated. We have already illustrated 
this by the example of wine : we shall now further exemphfy it by 
the case of commodities made by machinery. Suppose, as before, 
an article A made by a thousand pounds' worth of immediate 
labour. But instead of B, made by 500L worth of immediate 
labour and a machine worth 500?., let us suppose C, made by 500L 
worth of immediate labour with the aid of a machine which has been 
produced by another 500/. worth of immediate labour : the machine 
requiring a year for making, and worn out by a year's use ; profits 
being as before 20 per cent. A and C are made by equal quantities 
of labour, paid at the same rate : A costs lOOOZ. worth of direct 
labour ; C, only 500Z. worth, which however is made up to 1000^. 
by the labour expended in the construction of the machine. If 
labour, or its remuneration, were the sole ingredient of cost of pro- 
duction, these two things would exchange for one another. But 
will they do so ? Certainly not. The machine having been made 
in a year by an outlay of 500?., and profits being 20 per cent, the 
natural price of the machine is 600?. : making an additional 100?. 
which must be advanced, over and above his other expenses, by the 
manufacturer of C, and repaid to him wdth a profit of 20 per cent. 
While, therefore, the commodity A is sold for 1200?., C cannot be 
permanently sold for less than 1320?. 

A second consequence is, that every rise or fall of general profits 
will have an effect on values. Not indeed by raising or lowering 
them generally, (which, as we have so often said, is a contradiction 
and an impossibility) : but by altering the proportion in which the 
values of things are affected by the unequal lengths of time for 
which profit is due. When two things, though made by equal 
labour, are of unequal value because the one is called upon to yield 
profit for a greater number of years or months than the other ; this 
difference of value will iDe greater when profits are greater, and less 
when they are less. The wine which has to yield five years' profit 
more than the cloth, will surpass it in value much more if profits 
are 40 per cent, than if they are only 20. The commodities A and C, 
which, though made by equal quantities of labour, were sold for 
1200?. and 1320?., a difference of 10 per cent, would, if profits had 
been only half as much, have been sold for 1100?. and 1155?., a 
difference of only 5 per cent. 



466 BOOK: m. CHAPTER IV. § 6 

It follows from this, that even a general rise of wages, when it 
involves a real increase in the cost of labour, does in some degree 
influence values. It does not affect them in the manner vulgarly- 
supposed, by raising them universally. But an increase in the 
cost of labour lowers profits ; and therefore lowers in natural value 
the things into which profits enter in a greater proportion than the 
average, and raises those into which they enter in a less proportion 
than the average. All commodities in the production of which 
machinery bears a large part, especially if the machinery is very 
durable, are lowered in their relative value when profits fall ; or, 
what is equivalent, other things are raised in value relatively to 
them. This truth is sometimes expressed in a phraseology more 
plausible than sound, by saying that a rise of wages raises the value 
of things made by labour, in comparison with those made by 
machinery. But things made by machinery, just as much as any 
other things, are made by labour, namely, the labour which made 
the machinery itself : the only difference being that profits enter 
somewhat more largely into the production of things for which 
machinery is used, though the principal item of the outlay is still 
labour. It is better, therefore, to associate the effect with fall of 
profits than with rise of wages ; especially as this last expression ia 
extremely ambiguous, suggesting the idea of an increase of the 
labourer's real remuneration, rather than of what is alone to the 
purpose here, namely, the cost of labour to its employer. 

§ 6. Besides the natural and necessary elements in cost of 
production — labour and profits — there are others which are artificial 
and casual, as for instance a tax. The tax on malt is as much a 
part of the cost of production of that article as the wages of the 
labourers. The expenses which the law imposes, as well as those 
which the nature of things imposes, must be reimbursed with the 
ordinary profit from the value of the produce, or the things will not 
continue to be produced. But the influence of taxation on value 
is subject to the same conditions as the influence of wages and of 
profits. It is not general taxation, but differential taxation, that 
produces the effect. If all productions were taxed so as to take 
an equal percentage from all profits, relative values would be in 
no way disturbed. If only a few commodities were taxed, their 
value would rise : and if only a few were left untaxed, their value 
would fall. If half were taxed and the remainder untaxed, the 
first half would rise and the last would fall relatively to each other. 



This would be necessary in order to equalize tlie expectation of 
profit in all employments, without which the taxed employments 
would ultimately, if not immediately, be abandoned. But general 
taxation, when equally imposed, and not disturbing the relations 
of different productions to one another, cannot produce any effect 
on values. 

We have thus far supposed that all the means and appliances 
which enter into the cost of production of commodities, are things 
whose own value depends on their cost of production. Some of 
them, however, may belong to the class of things which cannot be 
increased ad libitum in quantity, and which therefore, if the demand 
goes beyond a certain amount, command a scarcity value. The 
materials of many of the ornamental articles manufactured in Italy 
are the substances called rosso, giallo, and verde antico, which, 
whether truly or falsely I know not, are asserted to be solely derived 
from the destruction of ancient columns and other ornamental 
structures ; the quarries from which the stone was originally cut 
being exhausted, or their locality forgotten.* A material of such 
a nature, if in much demand, must be at a scarcity value ; and this 
value enters into the cost of production, and consequently into the 
value, of the finished article. The time seems to be approaching 
when the more valuable furs will come under the influence of a 
scarcity value of the material. Hitherto the diminishing number 
of the animals which produce them, in the wildernesses of Siberia, 
and on the coasts of the Esquimaux Sea, has operated on the value 
only through the greater labour which has become necessary for 
securing any given quantity of the article, since, without doubt, 
by employing labour enough, it might still be obtained in much 
greater abundance for some time longer. 

But the case in which scarcity value chiefly operates in adding 
to cost of production, is the case of natural agents. These, when 
unappropriated, and to be had for the taking, do not enter into cost 
of production, save to the extent of the labour which may be necessary 
to fit them for use. Even when appropriated, they do not (as we 
have already seen) bear a value from the mere fact of the appro- 
priation, but only from scarcity, that is, from limitation of supply. 
But it is equally certain that they often do bear a scarcity value. 
Suppose a fall of water, in a place where there are more mills wanted 
than there is water-power to supply them ; the use of the fall of 

* [1862] Some of these quarries, J believe, have heen rediscovered, m^ 
§re again worked? 



4oa uuvjik 111. unAriJiiK iv. § o 

water will have a scarcity value, sufficient either to bring the demand 
down to the supply, or to pay for the creation of an artificial power, 
by steam or otherwise, equal in efficiency to the water-power. 

A natural agent being a possession in perpetuity, and being 
only serviceable by the products resulting from its continued employ- 
ment, the ordinary mode of deriving benefit from its ownership is by 
an annual equivalent, paid by the person who uses it, from the 
proceeds of its use. This equivalent always might be, and generally 
is, termed rent. The question, therefore, respecting the influence 
which the appropriation of natural agents produces on values, is 
often stated in this form : Does Rent enter into Cost of Production ? 
and the answer of the best political economists is in the negative. 
The temptation is strong to the adoption of these sweeping expres- 
sions, even by those who are aware of the restrictions with wbich 
they must be taken ; for there is no denying that they stamp a 
general principle more firmly on the mind, than if it were hedged 
round in theory with all its practical limitations. But they also 
puzzle and mislead, and create an impression unfavourable to 
poUtical economy, as if it disregarded the evidence of facts. No 
one can deny that rent sometimes enters into cost of production. 
If I buy or rent a piece of ground, and build a cloth manufactory 
on it, the ground-rent forms legitimately a part of my expenses of 
production, which must be repaid by the product. And since all 
factories are built on ground, and most of them in places where 
ground is pecuKarly valuable, the rent paid for it must, on the 
average, be compensated in the values of all things made in factories. 
In what sense it is true that rent does not enter into the cost of pro- 
duction or affect the value of agricultural produce, will be shown in 
the succeeding chapter. 



CHAPTER V 

OF RENT, IN ITS RELATION TO VALUE 

§ 1. We have investigated the laws which determine the value 
of two classes of commodities : the small class which, being limited 
to a definite quantity, have their value entirely determined by 
demand and supply, save that their cost of production (if they have 
any) constitutes a minimum below which they cannot permanently 
fall ; and the large class, which can be multipUed ad libitum by labour 
and capital, and of which the cost of production fixes the maximum 
as well as the minimum at which they can permanently exchange. 
But there is still a third kind of commodities to be considered : 
those which have, not one, but se veral costs of production : which 
can alwa ys be increased in quantit y b y labour and capital, but not 
by tFe same amount of l abour and capital ; of which so much may 
oe produced at a given cost, but a further quantity not without a, 
greater cost. These commodities form an intermediate class, par- 
taking of the character of ooth the others. The principal of them 
is agricultural prod^uce. We have already maiJe abundant reference 
to the fundamental truth, that in agriculture, the state of the art 
being given, doubling the labour does not double the produce; 
that if an increased quantity of produce is required, the additional 
supply is obtained at a greater cost than the first. Where a 
hundred quarters of corn are all that is at present required from 
the lands of a given village, if the growth of population made it 
necessary to raise a hundred more, either by breaking up worse 
land now uncultivated, or bj a more elaborate cultivation of the 
land already under the plough, the additiona nundred, or some 
part of them at least, might cost douoic or treble as much per 
quarter as the former supply. 

If the first hundred quarters were all raised at the same expense 
(only the oest land being cultivated) ; and if that expense would be 
Remunerated with the ordinary profit by a price of 20§. the quarter ; 



im WJUKl^lI. CHAPTER V. § I 

tlie natural price of wheat, so long as no more than that quantity 
was required, would be 205. ; and it could only rise above, or fall 
below that price, from vicissitudes of seasons, or other casual 
variations in supply. But if the population of the district advanced, 
a time would arrive when more than a hundred quarters would be 
necessary to feed it. We must suppose that there is no access to 
any foreign supply By the hypothesis, no more than a hundred 
quarters can be produced in the district, unless by either bringing 
worse land into cultivation, or altering the system of culture to a 
more expensive one. Neither of these things will be done without 
a rise in price. This rise of price will gradually be brought about 
by the increasing demand. So long as the price has risen, but not 
risen enough to repay with the ordinary profit the cost of producing 
an additional quantity, the increased value of the limited supply 
partakes of the nature of a scarcity value. Suppose that it will not 
answer to cultivate the second best land, or land of the second degree 
of remoteness, for a less return than 25^. the quarter ; and that 
this price is also necessary to remunerate the expensive operations 
by which an increased produce might be raised from land of the first 
quality. If so, the price will rise, through the increased demand, 
until it reaches 25s. That will now be the natural price ; being the 
price without which the quantity, for which society has a demand 
at that price, will not be produced. At that price, however, society 
can go on for some time longer ; could go on perhaps for ever, if 
population did not increase. The price, having attained that 
point, will not again permanently recede (though it may fall tem- 
porarily from accidental abundance) ; nor will it advance further, 
so long as society can obtain the supply it requires without a second 
increase of the cost of production. 

I have made use of Price in this rea'soning, as a convenient 
symbol of Value, from the greater familiarity of the idea ; and I 
shall continue to do so as far as may appear to be necessary. 

In the case supposed, different portions of the supply of corn 
have different costs of production. Though the 20, or 50, or 150 
quarters additional have been produced at a cost proportional to 
25s., the original hundred quarters per annum are still produced at 
a cost only proportional to 20s. This is self-evident, if the original 
and the additional supply are produced on different qualities of 
land. It is equally true if they are produced on the same land. 
Suppose that land of the best quality, which produced' 100 quarters 
at 20s,, has been made to produce 150 by an expensive process, which 



I 



RENT IN ITS RELATION TO VALUE 471 

it would not answer to undertake without a price of 255. The cost 
which requires 255. is incurred for the sake of 50 quarters alone : 
the first hundred might have continued for ever to be produced at 
the original cost, and with the benefit, on that quantity, of the 
whole rise of price caused by the increased demand : no one, there- 
fore, will incur the additional expense for the sake of the additional 
fifty, unless they alone will pay for the whole of it. The fifty, 
therefore, will be produced at their natural price, proportioned to 
the cost of their production ; while the other hundred will now 
bring in 55. a quarter more than their natural price — than the price 
corresponding to, and sufficing to remunerate, their lower cost of 
production. 

If the production of any, even the smallest, portion of the supply, 
requires as a necessary condition a certain price, that price will be 
obtained for all the rest. We are not able to buy one loaf cheaper 
than another because the corn from which it was made, being grown 
on a richer soil, has cost less to the grower. The value, th erefore, 
of an article (meaning its natural, which is the sam e with its average 
value) is determined by the cost of jhat portion of the supply which 
is produced and brought to market at the greatest expense. This 
is the Law of Value of the third of the three classes into which all 
commodities are divided. 

§ 2. If the portion of produce raised in the most unfavourable 
circumstances obtains a value proportioned to its cost of produc- 
tion ; all the portions raised in more favourable circumstances, 
selling as they must do at the same value, obtain a value more than 
proportioned to their cost of production. Their value is not, 
correctly speaking, a scarcity_value, for it is determined by the 
circumstances of the production of the commodity, and not by the 
degree of dearness necessary for keeping down the demand to the 
level of a limited supply. The owners, however, of those portions 
of the produce enjoy a privilege ; they obtain a value which yields 
them more than the ordinary profit. If this advantage depends 
upon any special exemption, such as being free from a tax, or upon 
any personal advantages, physical or mental, or any peculiar process 
only known to themselves, or upon the possession of a greater capital 
than other people, or upon various other things which might be 
enumerated, they retain it to themselves as an extra gain, over and 
above the general profits of capital, of the nature, in some sort, of a 
monopoly profit. But when, as in the case which we are more 



^ 



^ 



472 BOOK III. CHAPTER V. § 2 

particularly considering, the advantage depends on the possession of 
a natural agent of peculiar quaKty, as for instance of more fertile 
land than that which determines the general value of the com- 
modity ; and when this natural agent is not owned by themselves ; 
the person who does own it, is able to exact from them, in the form 
of rent, the whole extra gain derived from its use. We are thus 
brought by another road to the Law of Rent, investigated in the 
concluding chapter of the Second Book. Rent, we again see, is the 
difference between the unequal returns to different parts of the 
capital employed on the soil. Whatever surplus any portion of 
agricultural capital produces, beyond what is produced by the same 
amount of capital on the worst soil, or under the most expensive 
mode of cultivation, which the existing demands of society compel 
a recourse to ; that surplus will naturally be paid as rent from that 
capital, to the owner of the land on which it is employed. 

It was long thought by poHtical economists, among the rest 
even by Adam Smith, that the produce of land is always at a mono- 
poly value, because (they said) in addition to the ordinary rate of 
profit, it always yields something further for rent. This we now 
see to be erroneous. A thing cannot be at a monopoly value, when 
its supply can be increased to an indefinite extent if we are only 
willing to incur the cost. If no more corn than the existing quantity 
is grown, it is because the value has not risen high enough to re- 
munerate any one for growing it. Any land (not reserved for other 
uses, or for pleasure) which at the existing price, and by the exist- 
ing processes, will yield the ordinary profit, is tolerably certain, 
unless some artificial hindrance intervenes, to be cultivated, although 
nothing may be left for rent. As long as there is any land fit for 
cultivation, which at the existing price cannot be profitably culti- 
vated at all, there must be some land a Httle better, which will 
yield the ordinary profit, but allow nothing for rent : and that 
land, if within the boundary of a farm, will be cultivated by the 
farmer ; if not so, probably by the proprietor, or by some other 
person on sufferance. Some such land at least, under cultivation, 
there can scarcely fail to be. 

f^Rent, therefore, fo£nis no part of the cost of production which 
determines the value o f agricultural produce.^ Circumstances no 
doubt mayl)e conceived in which it might do ^so, and very largely 
too. We can imagine a country so fully peopled, and with all its 
cultivable soil so completely occupied, that to produce any additional 
quantity would require more labour than the produce would feed : 



RENT IN ITS RELATION TO VALUE 473 

and if we suppose this to be the condition of the whole world, or of 
a country debarred from foreign supply, then, if population con- 
tinued increasing, both the land and its produce would really rise 
to a monopoly or scarcity price. But this state of things never can 
have really existed anywhere, unless possibly in some small island 
cut off from the rest of the world ; nor is there any danger what- 
ever that it should exist. It certainly exists in no known region at 
present. Monopoly, we have seen, can take effect on value, only 
through limitation of supply. In all countries of any extent there 
is more cultivable land than is yet cultivated ; and while there is 
any such surplus, it is the same thing, so far as that quahty of land 
is concerned, as if there were an infinite quantity. What is practi- 
cally limited in supply is only the better qualities ; and even for 
those, so much rent cannot be demanded as would bring in the 
competition of the lands not yet in cultivation ; the rent of a piece 
of land must be somewhat less than the whole excess of its pro- 
ductiveness over that of the best land which it is not yet profitable 
to cultivate ; that is, it must be about equal to the excess above 
the worst land which it is profitable to cultivate. The land or the 
capital most unfavourably circumstanced among those actually 
employed, pays no rent ; and that land or capital determines the 
cost of production which regulates the value of the whole produce. 
Thus rent is, as we have already seen, no cause of value, but the 
price of the privilege which the inequality of the returns to different 
portions of agricultural produce confers on all except the least 
favoured portions. 

{Kent, in short, merely e quahzes the profits of different farming 
ca pitals, by enabling the l andlord to appropriate all extra gains 
oc casioned by superiority o f natural advantages^ If all landlords 
were unanimously to forego their rent, they would but transfer it 
to the farmers, without benefiting the consumer ; for the existing 
price of corn would still be an indispensable condition of the pro- 
duction of part of the existing supply, and if a part obtained that 
price the whole would obtain it. Rent, therefore, unless artificially 
increased by restrictive laws, is no burthen on the consumer : it does 
not raise the price of corn, and is no otherwise a detriment to the' 
pubHc, than inasmuch as if the state had retained it, or impose d an 
equivalent in the shape of a land-tax, it would then have been a 
fund applicable to gener al instead of private advantage . 

§ 3. Agricultural productions are not the only commodities 



474 BOOK III. CHAPTER V. § 3 

which have several different costs of production at once, and which 
in consequence of that difference, and in proportion to it, afford a 
rent. Mines are also an instance. Almost all kinds of raw material 
extracted from the interior of the earth — metal, coals, precious 
stones, &c., are obtained from mines differing considerably in 
fertility, that is, yielding very different quantities of the product to 
the same quantity of labour and capital. This being the case, it is 
an obvious question, why are not the most fertile mines so worked 
as to supply the whole market ? No such question can arise as to 
land ; it being self-evident, that the most fertile lands could not 
possibly be made to supply the whole demand of a fully-peopled 
country ; and even of what they do yield, a part is extorted from 
them by a labour and outlay as great as that required to grow the 
same amount on worse land. But it is not so with mines ; at least, 
not universally. There are, perhaps, cases in which it is impossible 
to extract from a particular vein, in a given time, more than a 
certain quantity of ore, because there is only a limited surface of 
the vein exposed, on which more than a certain number of labourers 
cannot be simultaneously employed. But this is not true of all 
mines. In colHeries, for example, some other cause of limitation 
must be sought for. In some instances the owners Hmit the quantity 
raised, in order not too rapidly to exhaust the mine : in others there 
are said to be combinations of owners, to keep up a monopoly price 
by limiting the production. Whatever be the causes, it is a fact that 
mines of different degrees of richness are in operation, and since the 
value of the produce must be proportional to the cost of production 
at the worst mine (fertility and situation taken together), it is more 
than proportional to that of the best. All mines superior in produce 
to the worst actually worked, will yield, therefore, a rent equal to 
the excess. They may yield more ; and the worst mine may itself 
yield a rent. Mines being comparatively few, their quaUties do not 
graduate gently into one another, as the qualities of land do ; and 
the demand may be such as to keep the value of the produce con- 
siderably above the cost of production at the worst mine now 
worked, without being sufficient to bring into operation a still worse. 
During the interval, the produce is really at a scarcity value. 

Fisheries are another example. Fisheries in the open sea are 
not appropriated, but fisheries in lakes or rivers almost always are 
so, and Ukewise oyster-beds or other particular fishing grounds on 
coasts. We may take salmon fisheries as an example of the whole 
class. Some rivers are far more productive in salmon than others. 



tlENT 1-^ ITS RELATION TO VALUE 4t5 

None, however, without being exhausted, can supply more than a 
very Hmited demand. The demand of a country Hke England can 
only be supplied by taking salmon from many different rivers of 
unequal productiveness, and the value must be sufficient to repay 
the cost of obtaining the fish from the least productive of these. All 
others, therefore, will if appropriated afford a rent equal to the 
value of their superiority. Much higher than this it cannot be, if 
there are salmon rivers accessible which from distance or inferior 
prodiictiveness have not yet contributed to supply the market. 
If there are not, the value, doubtless, may rise to a scarcity rate, and 
the worst fisheries in use may then yield a considerable rent. 

Both in the case of mines and of fisheries, the natural order of 
events is liable to be interrupted by the opening of a new mine, or a 
new fishery, of superior quality to some of those already in use. The 
first effect of such an incident is an increase of the supply ; which 
of course lowers the value to call forth an increased demand. This 
reduced value may be no longer sufficient to remunerate the worst 
of the existing mines or fisheries, and these may consequently be 
abandoned. If the superior mines or fisheries, with the addition of 
the one newly opened, produce as much of the commodity as is 
required at the lower value corresponding to their lower cost of 
production, the fall of value will be permanent, and there will be a 
corresponding fall in the rents of those mines or fisheries which are 
not abandoned. In this case, when things have permanently ad- 
justed themselves, the result will be, that the scale of quaHties 
which supply the market will have been cut short at the lower end, 
while a new insertion wiU have been made in the scale at some point 
higher up ; and the worst mine or fishery in use — the one which 
regulates the rents of the superior qualities and the value of the 
commodity — will be a mine or fishery of better quality than that by 
which they were previously regulated. 

Land is used for other purposes than agriculture, especially for 
residence ; and when so used, yields a rent, determined by prin- 
ciples similar to those already laid down. The ground rent of a 
building, and the rent of a garden or park attached to it, will not be 
less than the rent which the same land would afford in agriculture : 
but may be greater than this to an indefinite amount ; the surplus 
being either in consideration of beauty or of convenience, the con- 
venience often consisting in superior facihties for pecuniary gain. 
Sites of remarkable beauty are generally limited in supply, and 
therefore, if in great demand, are at a scarcity value. Sites superior 



4?6 BOOK 111. CHAPTER V. § 4 

only in convenience are governed as to their value by the ordinary 
principles of rent. The ground rent of a house in a small village is 
but little higher than the rent of a similar patch of ground in the 
open fields : but that of a shop in Cheapside will exceed these, by 
the whole amount at which people estimate the superior facilities 
of money-making in the more crowded place. The rents of wharfage, 
dock and harbour room, water-power, and many other privileges 
may be analysed on similar principles. 

§ 4. Cases of extra profit analogous to rent, are more frequent 
in the transactions of industry than is sometimes supposed. Take 
the case, for example, of a patent, or exclusive privilege for the use 
of a process by which cost of production is lessened. If the value of 
the product continues to be regulated by what it costs to those who 
are obliged to persist in the old process, the patentee will make an 
extra profit equal to the advantage which his process possesses over 
theirs. This extra profit is essentially similar to rent, and some- 
times even assumes the form of it ; the patentee allowing to other 
producers the use of his privilege, in consideration of an annual 
payment. So long as he, and those whom he associates in the 
privilege, do not produce enough to supply the whole market, so 
long the original cost of production, being the necessary condition of 
producing a part, will regulate the value of the whole ; and the 
patentee will be enabled to keep up his rent to a full equivalent for 
the advantage which his process gives him. In the commencement 
indeed he will probably forego a part of this advantage for the sake 
of underselling others : the increased supply which he brings forward 
will lower the value, and make the trade a bad one for those who do 
not share in the privilege : many of whom therefore will gradually 
retire, or restrict their operations, or enter into arrangements with 
the patentee : as his supply increases theirs will diminish, the value 
meanwhile continuing sHghtly depressed. But if he stops short in 
his operations before the market is wholly supplied by the new process, 
things will again adjust themselves to what was the natural value 
before the invention was made, and the benefit of the improvement 
will accrue solely to the patentee. 

The extra gains which any producer or dealer obtains through 
superior talents for business, or superior business arrangements, 
are very much of a similar kind. If all his competitors had the 
same advantages, and used them, the benefit would be transferred 
to their customers, through the diminished value of the article : 



KENT IN ifS RELATION TO VALUE ill 

he only retains it for himself because he is able to bring his commodity 
to market at a lower cost, while its value is determined by a higher. 
All advantages, in fact, which one competitor has over another, 
whether natural or acquired, whether personal or the result of social 
arrangements, bring the commodity, so far, into the Third Class, and 
assimilate the possessor of the advantage to a receiver of rent. 
Wages and profits represent the universal elements in production, 
while rent may be taken to represent the differential and peculiar : 
any difference in favour of certain producers, or in favour of pro- 
duction in certain circumstances, being the source of a gain, which, 
though not called rent unless paid periodically by one person to 
another, is governed by laws entirely the same with it. The price 
paid for a differential advantage in producing a commodity cannot 
enter into the general cost of production of the commodity. 

A commodity may no doiibt, in some contingencies, yield a 
rent even under the most disadvantageous circumstances of its 
production : but only when it is, for the time, in the condition 
of those commodities which are absolutely limited in supply, and 
is therefore selling at a scarcity value ; which never is, nor has been, 
nor can be, a permanent condition of any of the great rent-yielding 
commodities : unless through their approaching exhaustion, if 
they are mineral products (coal for example), or through an increase 
of population, continuing after a further increase of production 
becomes impossible : a contingency, which the almost inevitable 
progress of human culture and improvement in the long interval 
which has first to elapse, forbids us to consider as probable. 



CHAPTER VI 

SUMMARY OF THE THEORY OF VALUB 

§ 1. We have now attained a favourable point for looking 
back, and taking a simultaneous view of tbe space which we have 
traversed since the commencement of the present Book. The 
following are the principles of the theory of Value, so far as we 
have yet ascertained them. 

I. Value is a relative term. The value of a thing means the 
quantity of some other thing, or of things in general, which it 
exchanges for. The values of all things can never, therefore, rise 
or fall simultaneously. There is no such thing as a general rise 
or a general fall of values. Every rise of value supposes a fall, 
and every fall a rise. 

II. The temporary or Market Value of a thing depends on the 
demand and supply ; rising as the demand rises, and falUng as the 
supply rises. The demand, however, varies with the value, being 
generally greater when the thing is cheap than when it is dear ; 
and the value always adjusts itself in such a manner that the demand 
is equal to the supply. 

III. Besides their temporary value, things have also a permanent, 
or, as it may be called, a Natural Value, to which the market value, 
after every variation, always tends to return ; and the oscillations 
compensate for one another, so that, on the average, commodities 
exchange at about their natural value. 

IV. The natural value of some things is a scarcity value ; but 
most things naturally exchange for one another in the ratio of their 
cost of production, or at what may be termed their Cost Value. 

V. The things which are naturally and permanently at a scarcity 
value are those of which the supply cannot be increased at all, 
or not sufficiently to satisfy the whole of the demand which would 
exist for them at their cost value. 

VI. A monopoly value means a scarcity value. Monopoly 



SUMMARY OF THE THEORY OF VALUE 479 

cannot give a value to anything except through a limitation of the 
supply. 

VII. Every commodity of which the supply can be indefinitely" 
increased by labour and capital, exchanges for other things pro- 
portionally to the cost necessary for producing and bringing to 
market the most costly portion of the supply required. The 
natural value is synonymous with the Cost Value ; and the cost 
value of a thing means the cost value of the most costly portion 
of it. 

VIII. Cost of Production consists of several elements, some 
of which are constant and universal, others occasional. The 
universal elements of cost of production are, the wages of the 
labour, and the profits of the capital. The occasional elements 
are taxes, and any extra cost occasioned by a scarcity value of some 
of the requisites. 

^ IX. Kent is not an element in the cost of production of the 
commodity which yields it ; except in the cases (rather conceivable ; 
than actually existing) in which it results from, and represents, a 
scarcity value. But when land capable of yielding rent in agriculture 
is appHed to some other purpose, the rent which it would have 
yielded is an element in the cost of production of the commodity 
which it is employed to produce. K^ 

X. Omitting the occasional elements ; things which admit of 
indefinite increase, naturally and permanently exchange for each 
other according to the comparative amount of wages which must 
be paid for producing them, and the comparative amount of profits 
which must be obtained by the capitahsts who pay those wages. 

XI. The comparative amount of wages does not depend on 
what wages are in themselves. High wages do not make high 
values, nor low wages low values. The comparative amount of 
wages depends partly on the comparative quantities of labour 
required, and partly on the comparative rates of its remuneration. 

XII. So, the comparative rate of profits does not depend on 
what profits are in themselves ; nor do high or low profits make 
high or low values. It depends partly on the comparative lengths 
of time during which the capital is employed, and partly on the 
comparative rate of profits in different employments. 

XIII. If two things are made by the same quantity of labour, 
and that labour paid at the same rate, and if the wages of the 
labourer have to be advanced for the same space of time, and the 
nature of the employment does not require that there be a permanent 



480 BOOK III. CHAPTER VI. § 2 

difference in their rate of profit ; then, whether wages and profits 
be high or low, and whether the quantity of labour expended be 
much or little, these two things will, on the average, exchange for 
one another. 

XIV. If one of two things commands, on the average, a greater 
value than the other, the cause must be that it requires for its 
production either a greater quantity of labour, or a kind of labour 
permanently paid at a higher rate ; or that the capital, or part of 
the capital, which supports that labour, must be advanced for a 
longer period ; or lastly, that the production is attended with some 
circumstance which requires to be compensated by a permanently 
higher rate of profit. 

XV. Of these elements, the quantity of labour required for the 
production is the most important : the effect of the others is smaller, 
though none of them are insignificant. 

XVI. The lower profits are, the less important become the 
minor elements of cost of production, and the less do commodities 
deviate from a value proportioned to the quantity and quality 
of the labour required for their production. 

XVII. But every fall of profits lowers, in some degree, the 
cost value of things made with much or durable machinery, and 
raises that of things made by hand ; and every rise of profits does 
the reverse. 

§ 2. Such is the general theory of Exchange Value. It is 
necessary, however, to remark that this theory contemplates a 
system of production carried on by capitaHsts for profit, and not 
by labourers for subsistence. In proportion as we admit this 
last supposition — and in most countries we must admit it, at least 
in respect of agricultural produce, to a very great extent — such 
of the preceding theorems as relate to the dependence of value on 
cost of production will require modification. Those theorems are all 
grounded on the supposition that the producer's object and aim is 
to derive a profit from his capital. This granted, it follows that he 
must sell his commodity at the price which will afford the ordinary 
rate of profit, that is to say, it must exchange for other commodities 
at its cost value. But the peasant proprietor, the metayer, and 
even the peasant-farmer or allotment-holder — the labourer, under 
whatever name, producing on his own account — is seeking, not an 
investment for his little capital, but an advantageous employment 
for his time and labour. His disbursements, beyond his own 



SUMMARY OF THE THEORY OF VALUE 481 

maintenance and tliat of his family, are so small, that nearly the 
whole proceeds of the sale of the produce are wages of labour. 
When he and his family have been fed from the produce of the 
farm (and perhaps clothed with materials grown thereon, and 
manufactured in the family) he may, in respect of the supplementary 
remuneration derived from the sale of the surplus produce, be 
compared to those labourers who, deriving their subsistence from 
an independent source, can afford to sell their labour at any price 
which is to their minds worth the exertion. A peasant, who supports 
himself and his family with one portion of his produce, will often 
sell the remainder very much below what would be its cost value 
to the capitahst. 

There is, however, even in this case, a minimum, or inferior 
Umit, of value. The produce which he carries to market, must 
bring in to him the value of all necessaries which he is compelled 
to purchase ; and it must enable him to pay his rent. Kent, under 
peasant cultivation, is not governed by the principles set forth in 
the chapters immediately preceding, but is either determined by 
custom, as in the case of metayers, or, if fixed by competition, 
depends on the ratio of population to land. Rent, therefore, in 
this case, is an element of cost of production. The peasant must 
work until he has cleared his rent and the price of all purchased 
necessaries. After this, he will go on working only if he can sell 
the produce for such a price as will overcome his aversion to labour. 
The minimum just mentioned is what the peasant must obtain 
in exchange for the whole of his surplus produce. But inasmuch 
as this surplus is not a fixed quantity, but may be either greater 
or less according to the degree of his industry, a minimum value 
for the whole of it does not give any minimum value for a definite 
quantity of the commodity. In this state of things, therefore, it 
can hardly be said that the value depends at all on cost of production. 
It depends entirely on demand and supply, that is, on the proportion 
between the quantity of surplus food which the peasants choose 
to produce, and the numbers of the non-agricultural, or rather of 
the non-peasant population. If the buying class were numerous 
and the growing class lazy, food might be permanently at a scarcity 
price. I am not aware that this case has anywhere a real existence. 
If the growing class is energetic and industrious, and the buyers 
few, food will be extremely cheap. This also is a rare case, though 
some parts of France perhaps approximate to it. The common 
cases are, either that, as in Ireland until lately, the peasant class 



482 BOOR III. CHAPTER VI. § 3 

is indolent and the buyers few, or the peasants industrious and the 
town population numerous and opulent, as in Belgium, the north 
of Italy, and parts of Germany. The price of the produce will 
adjust itself to these varieties of circumstances unless modified, as 
in many cases it is, by the competition of producers who are not 
peasants, or by the prices of foreign markets. 

§ 3. Another anomalous case is that of slave-grown produce : 
which presents, however, by no means the same degree of complica- 
tion. The slave- owner is a capitaHst, and his inducement to 
production consists in a profit on his capital. This profit must 
amount to the ordinary rate. In respect to his expenses, he is in 
the same position as if his slaves were free labourers working with 
their present efficiency, and were hired with wages equal to their 
present cost. If the cost is less, in proportion to the work done, 
than the wages of free labour would be, so much the greater .are his 
profits : but if all other producers in the country possess the same 
advantage, the values of commodities will not be at all affected by 
it. The only case in which they can be affected, is when the privilege 
of cheap labour is confined to particular branches of production, 
free labourers at proportionally higher wages being employed in the 
remainder. In this case, as in all cases of permanent inequality 
between the wages of different employments, prices and values 
receive the impress of the inequahty. Slave-grown will exchange 
for non-slave-grown commodities in a less ratio than that of the 
quantity of labour required for their production ; the value of 
the former will be less, of the latter greater, than if slavery did 
not exist. 

The further adaptation of the theory of value to the varieties 
of existing or possible industrial systems may be left with great 
advantage to the intelhgent reader. It is well said by Montesquieu, 
"U ne faut pas toujours tellement epuiser un sujet, qu'on ne laisse 
rien a faire au lecteur. II ne s'agit pas de faire Hre, mais de faire 
penser." * 

* Esprit des Lois, liv. xi. ad finem. [See Appendix S. The Theory of VnlueSl 



CHAPTER VII 

OP MONEY 

f 1. Having proceeded thus far in ascertaining the general 
laws of Value, "without introducing the idea of Money (except 
occasionally for illustration,) it is time that we should now superadd 
that idea, and consider in what manner the principles of the mutual 
interchange of commodities are afiected by the use of what is termed 
a Medium of Exchange. 

In order to imderstand the manifold functions of a Circulating! 
Medium, there is no better way than to consider what are the/ 
principal inconveniences which we should experience if we had not! 
such a medium. The first and most obvious would be the want of! 
ajcom mon measure for values of different sorta . If a tailor had 
only coats, and wanted to buy bread or a horse, it would be very 
troublesome to ascertain how much bread he ought to obtain for 
a coat, or how many coats he should give for a horse. The calcu- 
lation must be recommenced on different data, every time he 
bartered his coats for a different kind of article ; and there could be 
no current price, or regular quotations of value. Whereas now 
each thing has a current price in money, and he gets over all 
difficulties by reckoning his coat at U. or 5Z., and a four-pound 
loaf at Qd. or 7d. As it is much easier to compare different lengths ' 
by expressing them in a common language of feet and inches, so it 
is much easier to compare values by means of a common language 
of pounds, shillings, and pence. In no other way can values be 
arranged one above another in a scale ; in no other can a person 
conveniently calculate the sum of his possessions ; and it is easier to 
ascertain and remember the relations of many things to one thing, 
than their innumerable cross relations with one another. This 
advantage of having a common language. in which values may be 
expressed, is, even by itself, so important, that some such mode of 
expressing and computicg them would probably be used even if a 



4g4 BOOE III. CHAPTER VII. § 2 

pound or a shilling did not express any real thing, but a mere unit 
of calculation. It is said that there are African tribes in which this 
somewhat artificial contrivance actually prevails. They calculate 
the value of things in a sort of money of account, called macutes. 
They say one thing is worth ten macutes, another fifteen, another 
twenty.* There is no real thing called a macute : it is a conventional 
unit, for the more convenient comparison of things with one another. 
This advantage, however, forms but an inconsiderable part of 
the economical benefits derived from the use of money. The 
inconveniences of barter are so great, that without some more 
commodious means of effecting exchanges, the division of employ- 
ments could hardly have been carried to any considerable extent. 
A tailor, who had nothing but coats, might starve before he could 
find any person having bread to sell who wanted a coat : besides, 
he would not want as much bread at a time as would be worth a 
coat, and the coat could not be divided. Every person, therefore, 
would at all times hasten to dispose of his commodity in exchange 
for anything which, though it might not be fitted to his own im- 
mediate wants, was in great and general demand, and easily divisible, 
so that he might be sure of being able to purchase with it whatever 
was offered for sale. The primary necessaries of fife possess these 
properties in a high degree. Bread is extremely divisible, and an 
object of universal desire. Still, this is not the sort of thing re- 
quired : for, of food, unless in expectation of a scarcity, no one 
wishes to possess more at once, than is wanted for immediate 
consumption ; so that a person is never sure of finding an immediate 
purchaser for articles of food ; and unless soon disposed of, most of 
them perish. The thing which people would select to keep by 
them for making purchases, must be one which, besides being 
divisible and generally desired, does not deteriorate by keeping.! 
This reduces the choice to a small number of articles. 

§ 2. By a tacit concurrence, almost all nations, at a very early 
period, fixed upon certain metals, and especially gold and silver, 
to serve this purpose. ' No other substances unite the necessary 
quahties in so great a degree, with so many subordinate advantages. 
Next to food and clothing, and in some chmates even before clothing, 
the strongest inclination in a rude state of society is for personal 
ornament, and for the kind of distinction which is obtained by 
rarity or costHness in such ornaments. After the immediate 

* Montesquieu, Esprit des Lois, liv. xxii. ch. 8. 



MONEY 485 

necessities of Kfe were satisfied, every one was eager to accumulate 
as great a store as possible of tMngs at once costly and ornamental ; 
which were chiefly gold, silver, and jewels. These were the things 
which it most pleased every one to possess, and which there was 
most certainty of finding others willing to receive in exchange for 
any kind of produce. They were among the most imperishable of all 
substances. They were also portable, and containing great value 
in small bulk, were easily hid ; a consideration of much importance 
in an age of insecurity. Jewels are inferior to gold and silver in the 
quality of divisibihty ; and are of very various quahties, not to be 
accurately discriminated without great trouble. Gold and silver are 
eminently divisible, and when pure, always of the same quahty ; and 
their purity may be ascertained and certified by a pubhc authority. 
Accordingly, though furs have been employed as money in some 
countries, cattle in others, in Chinese Tartary cubes of tea closely 
pressed together, the shells called cowries on the coast of Western 
Africa, and in Abyssinia at this day blocks of rock salt ; though 
even of metals, the less costly have sometimes been chosen, as iron 
in Lacedsemon from an ascetic pohcy, copper in the early Roman 
republic from the poverty of the people ; gold and silver have been 
generally preferred by nations which were able to obtain them, 
either by industry, commerce, or conquest. To the quahties which 
originally recommended them, another came to be added, the 
importance of which only unfolded itself by degrees. Of all com- 
modities they are among the least influenced by any of the causes 
which produce fluctuations of value. No commodity is quite 
free from such fluctuations. Gold and silver have sustained, since 
the beginning of history, one great permanent alteration of value, 
from the discovery of the American mines ; and some temporary 
variations, such as that which, in the last great war,^ was produced 
by the absorption of the metals in hoards, and in the military chests 
of the immense armies constantly in the field. In the present age 
the opening of new sources of supply, so abundant as the Ural 
mountains, Cahfornia, and AustraHa,^ may be the commencement 
of another period of dechne, on the hmits of which it would be 
useless at present to speculate. But on the whole, no commodities 
are so little exposed to causes of variation. They fluctuate less than 
almost any other things in their cost of production. And from 

1 [I.e. the Napoleonic war.] 

2 [So from the 3rd ed. (1852), In the 1st ed. (1848) : « so abundant aa 
the mines of the Ural mountains and of Siberia." In the 2nd ed. (1849) : 
** to which may now be added California."] 



486 BOOK III. CHAPTER VII. § 2 

their durability, the total quantity in existence is at all times so 
great in proportion to the annual supply, that the effect on value 
even of a change in the cost of production is not sudden : a very 
long time being required to diminish materially the quantity in 
existence, and even to increase it very greatly not being a rapid 
process. Gold and silver, therefore, are more fit than any other 
commodity to be the subject of engagements for receiving or paying 
a given quantity at some distant period. If the engagement were 
made in corn, a failure of crops might increase the burthen of the 
payment in one year to fourfold what was intended, or an exuberant 
harvest sink it in another to one-fourth. If stipulated in cloth, 
some manufacturing invention might permanently reduce the 
payment to a tenth of its original value. Such things have occurred 
even in the case of payments stipulated in gold and silver ; but the 
great fall of their value after the discovery of America, is, as yet,^ 
the only authenticated instance ; and in this case the change was 
extremely gradual, being spread over a period of many years. 

When gold and silver had become virtually a medium of exchange, 
by becoming the things for which people generally sold, and with 
which they generally bought, whatever they had to sell or to buy ; 
the contrivance of coining obviously suggested itself. By this 
process the metal was divided into convenient portions, of any 
degree of smallness, and bearing a recognised proportion to one 
another ; and the trouble was saved of weighing and assaying at 
every change of possessors, an inconvenience which on the occasion 
of small purchases would soon have become insupportable. Govern- 
ments found it their interest to take the operation into their own 
hands, and to interdict all coining by private persons ; indeed, 
their guarantee was often the only one which would have been 
relied on, a reliance however which very often it ill deserved ; 
profligate governments having until a very modern period seldom 
scrupled, for the sake of robbing their creditors, to confer on all 
other debtors a licence to rob theirs, by the shallow and impudent 
artifice of lowering the standard ; that least covert of all modes of 
knavery, which consists in calling a shilling a pound, that a debt of 
one hundred pounds may be cancelled by the payment of a hundred 
shillings. It would have been as simple a plan, and would have 
answered the purpose as well, to have enacted that " a hundred '* 
should always be interpreted to mean five, which would have 
effected the same reduction in all pecuniary contracts, and would 

1 [" As yet " added in 2nd ed. (1849).] 



MONEY 487 

not have been at all more shameless. Such strokes of policy have not 
wholly ceased to be recommended, but they have ceased to be 
practised ; except occasionally through the medium of paper 
money, in which case the character of the transaction, from the 
greater obscurity of the subject, is a little less barefaced, 

§ 3. Money, when its use has grown habitual, is the medium 
through which the incomes of the different members of the com- 
munity are distributed to them, and the measure by which they 
estimate their possessions. As it is always by means of money that 
people provide for their different necessities, there grows up in their 
minds a powerful association leading them to regard money as wealth 
in a more peculiar sense than any other article ; and even those who 
pass their lives in the production of the most useful objects, acquire 
the habit of regarding those objects as chiefly important by their 
capacity of being exchanged for money. A person who parts with 
money to obtain commodities, unless he intends to sell them, appears 
to the imagination to be making a worse bargain than a person who 
parts with commodities to get money ; the one seems to be spending 
his means, the other adding to them. Illusions which, though now in 
some measure dispelled, were long powerful enough to overmaster the 
mind of every politician, both speculative and practical, in Europe. 

It must be evident, however, that the mere introduction of a 
particular mode of exchanging things for one another by first 
exchanging a thing for money, and then exchanging the money 
for something else, makes no difference in the essential character 
of transactions. It is not with money that things are really pur- 
chased. Nobody's income (except that of the gold or silver miner) 
is derived from the precious metals. The pounds or shillings which 
a person receives weekly or yearly, are not what constitutes his 
income ; they are a sort of tickets or orders which he can present 
for payment at any shop he pleases, and which entitle him to 
receive a certain value of any commodity that he makes choice of. 
The farmer pays his labourers and his landlord in these tickets, 
as the most convenient plan for himself and them ; but their 
real income is their share of his corn, cattle, and hay, and it makes 
no essential difference whether he distributes it to them directly, 
or sells it for them and gives them the price ; but as they would have 
to sell it for money if he did not, and as he is a seller at any rate, 
it best suits the purposes of all, that he should sell their share along 
with his own, and leave the labourers more leisure for work and the 



488 BOOK III. CHAPTER VII. § 3 

landlord for being idle. The capitalists, except those who are 
producers of the precious metals, derive no part of their income from 
those metals, since they only get them by buying them with their 
own produce : while all other persons have their incomes paid to 
them by the capitalists, or by those who have received payment from 
the capitaUsts ; and as the capitalists have nothing, from the first, 
except their produce, it is that and nothing else which supplies all 
incomes furnished by them. There cannot, in short, be intrinsically 
a more insignificant thing, in the economy of society, than money j 
except in the character of a contrivance for sparing time and labour. 
It is a machine for doing quickly and commodiously, what would be 
done, though less quickly and commodiously, without it : and like 
many other kinds of machinery, it only exerts a distinct and 
independent influence of its own when it gets out of order. 

The introduction of money does not interfere with the operation 
of any of the Laws of Value laid down in the preceding chapters. 
The reasons which make the temporary or market value of things 
depend on the demand and supply, and their average and permanent 
values upon their cost of production, are as applicable to a money 
system as to a system of barter. Things which by barter would 
exchange for one another, will, if sold for money, sell for an equal 
amount of it, and so will exchange for one another still, though 
the process of exchanging them will consist of two operations 
instead of only one. The relations of commodities to one another 
remain unaltered by money : the only new relation introduced is 
their relation to money itself ; how much or how little money they 
will exchange for ; in other words, how the Exchange Value of money 
itself is determined. And this is not a question of any difficulty, 
when the illusion is dispelled, which caused money to be looked 
upon as a peculiar thing, not governed by the same laws as other 
things. Money is a commodity, and its value is determined like 
that of other commodities, temporarily by demand and supply, 
permanently and on the average by cost of production. The 
illustration of these principles, considered in their application to 
* money, must be given in some detail, on account of the confusion 
which, in minds not scientifically instructed on the subject, envelopes 
the whole matter ; partly from a lingering remnant of the mis- 
leading associations, and partly from the mass of vapoury and 
baseless speculation with which this, more than any other topic 
of political economy, has in latter times become surrounded. I 
shall tlierefore treat of the Value of Money in a chapter apart. 



CHAPTER VIII 

OF THE VALUE OF MONEY, AS DEPENDENT ON DEMAND AND SUPPLY 

§ 1. It is unfortunate that in tlie very outset of tlie subject 
we have to clear from our path a formidable ambiguity of language. 
The Value of Money is to appearance an expression as precise, as 
free from possibihty of misunderstanding, as any in science. The 
value of a thing is what it will exchange for : the value of money 
is what money will exchange for ; the purchasing power of money. 
If prices are low, money will buy much of other things, and is of 
high value ; if prices are high, it will buy little of other things, and 
is of low value. The value of money is inversely as general prices : 
falling as they rise, and rising as they fall. 

But unhappily the same phrase is also employed, in thp current 
language of commerce, in a very different sense. Money, which is 
80 commonly understood as the synonym of wealth, is more 
especially the term in use to denote it when it is the subject of 
borrowing. When one person lends to another, as well as when 
he pays wages or rent to another, what he transfers is not the mere 
money, but a right to a certain value of the produce of the country, 
to be selected at pleasure ; the lender having first bought this 
right by giving for it a portion of his capital. What he really 
lends is so much capital ; money is the mere instrument of transfer. 
But the capital usually passes from the lender to the receiver through 
the means either of money, or of an order to receive money, and at 
any rate it is in money that the capital is computed and estimated. 
Hence, borrowing capital is universally called borrowing money ; 
the loan market is called the money market : those who have their 
capital disposable for investment on loan are called the monied 
class : and the equivalent given for the use of capital, or in other 
words, interest, is not only called the interest of money, but, by a 
grosser perversion of terms, the value of money. This misapplication 
of language, assisted by some fallacious appearances which we 



490 BOOK m. CHAPTER VIII. § 2 

shall notice and clear up hereafter,* has created a general notion 
among persons in business, that the Value of Money, meaning the 
rate of interest, has an intimate connexion with the Value of Money 
in its proper sense, the value or purchasing power of the circulating 
medium. We shall return to this subject before long : at present 
it is enough to say, that by Value I shall always mean Exchange 
Value, and by money the medium of exchange, not the capital 
which is passed from hand to hand through that medium. 

II § 2. The value or purchasing power of money depends, in the 
1 1 first instance, on demand and supply. But demand and supply, 
in relation to money, present themselves in a somewhat different 
shape from the demand and supply of other things. 

The supply of a commodity means the quantity offered for sale. 
But it is not usual to speak of offering money for sale. People are 
not usually said to buy or sell money. This, however, is merely 
an accident of language. In point of fact, money is bought and 
sold like other things, whenever other things are bought and sold 
for money. Whoever sells corn, or tallow, or cotton, buys money. 
Whoever buys bread, or wine, or clothes, sells money to the dealer 
in those articles. The money with which people are offering to 
buy is money offered for sale. The supply of money, then, is the 
quantity of it which people are wanting to lay out ; that is, all the 
money they have in their possession, except what they are hoarding, 
or at least keeping by them as a reserve for future contingencies. 
The supply of money, in short, is all the money in circulation at the 
time. 

The demand for money, again, consists of all the goods offered 
for sale. Every seller of goods is a buyer of money, and the goods 
he brings with him constitute his demand. The demand for money 
differs from the demand for other things in this, that it is limited 
only by the means of the purchaser. The demand for other things 
is for so much and no more ; but there is always a demand for as 
much money as can be got. Persons may indeed refuse to sell, 
and withdraw their goods from the market, if they cannot get for 
them what they consider a sufficient price. But this is only when 
they think that the price will rise, and that they shall get more money 
by waiting. If they thought the low price likely to be permanent, 
they would take what they could get. It is always a sine qud nan 
with a dealer to dispose of his goods. 

* Infra, chap, xxui. 



VALUE OF MONEY ' 491 

As the whole of the goods in the market compose the demand 
for money, so the whole of the money constitutes the demand for 
goods. The money and the goods are seeking each other for the 
purpose of being exchanged. They are reciprocally supply and 
demand to one another. It is indifferent whether, in characterizing 
the phenomena, we speak of the demand and supply of goods, or 
the supply and the demand of money. They are equivalent expres- 
sions. 

We shall proceed to illustrate this proposition more fully. And 
in doing this, the reader will remark a great difference between 
the class of questions which now occupy us, and those which we 
previously had under discussion respecting Values. In considering 
Value, we were only concerned with causes which acted upon 
particular commodities apart from the rest. Causes which affect 
all commodities alike do not act upon values. But in considering 
the relation between goods and money, it is with the causes that 
operate upon all goods whatever that we are specially concerned. 
We are comparing goods of all sorts on one side, with money on the 
other side, as things to be exchanged against each other. 

Suppose, everything else being the same, that there is an increase 
in the quantity of money, say by the arrival of a foreigner in a 
place, with a treasure of gold and silver. When he commences 
expending it (for this question it matters not whether productively 
or unproductively), he adds to the supply of money, and, by the 
same act, to the demand for goods. Doubtless he adds, in the first 
instance, to the demand only for certain kinds of goods, namely, 
those which he selects for purchase ; he will immediately raise 
the price of those, and so far as he is individually concerned, of those 
only. If he spends his funds in giving entertainments, he will raise 
the prices of food and wine. If he expends them in establishing 
a manufactory, he will raise the prices of labour and materials. 
But at the higher prices, more money will pass into the hands of the 
sellers of these different articles ; and they, whether labourers or 
dealers, having more money to lay out, wiU create an increased 
demand for all the things which they are accustomed to purchase : 
these accordingly will rise in price, and so on until the rise has 
reached everything. I say everything, though it is of course 
possible that the influx of money might take place through the 
medium of some new class of consumers, or in such a manner as to 
alter the proportions of different classes of consumers to one another, 
so that a greater share of the national income than before would 



492 BOOK III. CHAPTER VIII. § 2 

thencefortli be expended in some articles, and a smaller in others ; 
exactly as if a change had taken place in the tastes and wants of the 
community. If this were the case, then until production had 
accommodated itself to this change in the comparative demand 
for different things, there would be a real alteration in values, and 
some things would rise in price more than others, while some perhaps 
would not rise at all. These effects, however, would evidently 
proceed, not from the mere increase of money, but from accessory 
circumstances attending it. We are now only called upon to con- 
sider what would be the effect of an increase of money, considered 
by itself. Supposing the money in the hands of individuals to be 
increased, the wants and inclinations of the community collectively 
in respect to consumption remaining exactly the same ; the increase 
of demand would reach all things equally, and there would be an 
universal rise of prices. We might suppose, with Hume, that 
some morning, every person in the nation should wake and find a 
gold coin in his pocket : this example, however, would involve an 
alteration of the proportions in the demand for different com- 
modities ; the luxuries of the poor would, in the first instance, be 
raised in price in a much greater degree than other things. Let 
us rather suppose, therefore, that to every pound, or shilling, or 
penny, in the possession of any one, another pound, shilling, or 
penny, were suddenly added. There would be an increased money 
demand, and consequently an increased money value, or price, 
for things of all sorts. This increased value would do no good to 
any one ; would make no difference, except that of having to reckon 
pounds, shillings, and pence, in higher numbers. It would be an 
increase of values only as estimated in money, a thing only wanted 
to buy other things with ; and would not enable any one to buy 
more of them than before. Prices would have risen in a certain 
ratio, and the value of money would have fallen in the same ratio. 
It is to be remarked that this ratio would be precisely that in 
which the quantity of money had been increased. If the whole 
money in circulation was doubled, prices would be doubled. If it 
was only increased one-fourth, prices would rise one-fourth. There 
would be one-fourth more money, all of which would be used to 
purchase goods of some description. When there had been time 
for the increased supply of money to reach all markets, or (according 
to the conventional metaphor) to permeate all the channels of circu- 
lation, all prices would have risen one-fourth. But the general rise 
of price is independent of this diffusing and equaHzing process. Even 



VALUE OF MONEY 493 

if some prices were raised more, and otters less, tlie average rise 
would be one-fourth. This is a necessary consequence of the fact 
that a fourth more money would have been given for only the same 
quantity of goods. General prices, therefore, would in any case be 
a fourth higher. 

The very same effect would be produced on prices if we suppose 
the goods diminished, instead of the money increased : and the 
contrary effect if the goods were increased or the money diminished. 
If there were less money in the hands of the community, and the 
same amount of goods to be sold, less money altogether would be 
given for them, and they would be sold at lower prices ; lower, too, 
in the precise ratio in which the money was diminished. So that 
the value of money, other things being the same, varies' inversely 
as its quantity ; every increase of quantity lowering the value, and 
every diminution raising it, in a ratio exactly equivalent. 

This, it must be observed, is a property peculiar to money. We 
did not find it to be true of commodities generally, that every 
diminution of supply raised the value exactly in proportion to the 
deficiency, or that every increase lowered it in the precise ratio of 
the excess. Some things are usually affected in a greater ratio than 
that of the excess or deficiency, others usually in a less : because, 
in ordinary cases of demand, the desire^ being for the thing itself, may 
be stronger or weaker : and the amount of what people are willing 
to expend on it, being in any case a hmited quantity, may be affected 
in very unequal degrees by difficulty or facility of attainment. But 
in the case of money, which is desired as the means of universal 
purchase, the demand consists of everything which people have to 
sell ; and the only Hmit to what they are willing to give is the Hmit 
set by their having nothing more to offer. The whole of the 
goods being in any case exchanged for the whole of the money 
which comes into the market to be laid out, they will sell for less 
or more of it, exactly according as less or more is brought. 

§ 3. From what precedes, it might for a moment be supposed 
that all the goods on sale in a country, at any one time, are exchanged 
for all the money existing and in circulation at that same time : 
or, in other words, that there is always in circulation in a country 
a quantity of money equal in value to the whole of the goods then 
and there on sale. But this would be a complete misapprehension. 
The money laid out is equal in value to the goods it purchases ; but 
the quantity of money laid out is not the same thing with the 



494 BOOK IIL CHAPTER VIII. § 3 

quantity in circulation. As the money passes from hand to hand, the 
same piece of money is laid out many times, before all the things 
on sale at one time are purchased and finally removed from the 
market : and each pound or dollar must be counted for as many 
pounds or dollars, as the number of times it changes hands in order 
to effect this object. The greater part of the goods must also be 
counted more than once, not only because most things pass through 
the hands of several sets of manufacturers and dealers before they 
assume the form in which they are finally consumed, but because 
in times of speculation (and all times are so, more or less) the same 
goods are often bought repeatedly, to be resold for a profit, before 
they are bought for the purpose of consumption at all. 

If we assume the quantity of goods on sale, and the number of 
times those goods are resold, to be fixed quantities, the value of 
money will depend upon its quantity, together with the average 
number of times that each piece changes hands in the process. 
The whole of the goods sold (counting each resale of the same goods 
as so much added to the .goods) have been exchanged for the whole 
of the money, multipHed by the number of purchases made on the 
average by each piece. Consequently, the amount of goods and of 
transactions being the same, the value of money is inversely as 
its quantity multiphed by what is called the rapidity of circulation. 
And the quantity of money in circulation is equal to the money 
value of all the goods sold, divided by the number which expresses 
the rapidity of circulation. 

The phrase, rapidity of circulation, requires some comment. 
It must not be understood to mean the number of purchases made 
by each piece of money in a given time. Time is not the thing 
to be considered. The state of society may be such that each 
piece of money hardly performs more than one purchase in a year : 
but if this arises from the small number of transactions — from the 
small amount of business done, the want of activity in traffic, or 
because what traffic there is, mostly takes place by barter — it 
constitutes no reason why prices should be lower, or the value of 
money higher. The essential point is, not Jiqw often the same 
money changes hands in a given time, bu^how often it changes 
hands in order to perform a given amount of traffic. We must 
compare the number of purchases made by the money in a given 
time, not with the time itself, but with the goods sold in that same 
time. If each piece of money changes hands on an average ten 
times while goods are sold to the value of a milHon sterling, it is 



VALUE OF MONEY 495 

evident that the money required to circulate those goods is 100,000Z. 
And conversely, if the money in circulation is 100,000L, and each 
piece changes hands by the purchase of goods ten times in a month, 
the sales of goods for money which take place every month must 
amount on the average to 1,000,000?. 

Eapidity of circulation being a phrase so ill adapted to express 
the only thing which it is of any importance to express by it, and 
having a tendency to confuse the subject by suggesting a meaning 
extremely different from the one intended, it would be a good thing 
if the phrase could be got rid of, and another substituted, more 
directly significant of the idea meant to be conveyed. Some such 
expression as " the efficiency of money," though not unexceptionable, 
would do better ; as it would point attention to the quantity of 
Work done, without suggesting the idea of estimating it by time. 
Until an appropriate term can be devised, we must be content, 
when ambiguity is to be apprehended, to express the idea by the 
circumlocution which alone conveys it adequately, namely, the 
average number of purchases made by each piece in order to effect 
a given pecuniary amount of transactions. 

§ 4. The proposition which we have laid down respecting tha 
dependence of general prices upon the quantity of money in cir- 
culation, must be understood as applying only to a state of things 
in which money, that is, gold or silver, is the exclusive instrument 
of exchange, and actually passes from hand to hand at every purchase, 
credit in any of its shapes being unknown. When credit comes 
into play as a means of purchasing, distinct from money in hand, 
we shall hereafter find that the connexion between prices and the 
amount of the circulating medium is much less direct and intimate, 
and that such connexion as does exist no longer admits of so simple 
a mode of expression. But on a subject so full of complexity as that 
of currency and prices, it is necessary to lay the foundation of our 
theory in a thorough understanding of the most simple cases, which 
we shall always find lying as a groundwork or substratum under 
those which arise in practice. That an increase of the quantity of 
money raises prices, and a diminution lowers them, is the most 
elementary proposition in the theory of currency, and without it we 
should have no key to any of the others. In any state of things, 
however, except the simple and primitive one which we have sup- 
posed, the proposition is only true other things being the same : 
and what those other things are, which must be the same, we are 



406 BOOK III. CHAPTER VIII. § 4 

not yet ready to pronounce. We can, however, point out, even 
now, one or two of the cautions with which the principle must be 
guarded in attempting to make use of it for the practical explanation 
of phenomena ; cautions the more indispensable, as the doctrine, 
though a scientific truth, has of late years been the foundation of 
a greater mass of false theory, and erroneous interpretation of 
facts, than any other proposition relating to interchange. From 
the time of the resumption of cash payments by the Act of 1819, 
and especially since the commercial crisis of 1825, the favourite 
explanation of every rise or fall of prices has been the " currency ; " 
and hke most popular theories, the doctrine has been appHed 
with Httle regard to the conditions necessary for making it correct. 

For example, it is habitually assumed that whenever there is 
a greater amount of money in the country, or in existence, a rise 
of prices must necessarily follow. But this is by no means an 
inevitable consequence. In no commodity is it the quantity in 
existence, but the quantity offered for sale, that determines the 
value. Whatever may be the quantity of money in the country, 
only that part of it will affect prices which goes into the market 
of commodities, and is there actually exchanged against goods. 
Whatever increases the amount of this portion of the money in the 
country, tends to raise prices. But money hoarded does not act 
on prices. Money kept in reserve by individuals to meet con- 
tingencies which do not occur, does not act on prices. The money 
in the coffers of the Bank, or retained as a reserve by private 
bankers, does not act on prices until drawn out, nor even then 
unless drawn out to be expended in commodities. 

It frequently happens that money, to a considerable amount, 
is brought into the country, is there actually invested ^ as capital, 
and again flows out, without having ever once acted upon the 
markets of commodities, but only upon the market of securities, 
or, as it is commonly though improperly called, the money market. 
Let us return to the case already put for illustration, that of a 
foreigner landing in the country with a treasure. We supposed 
him to employ his treasure in the purchase of goods for his own use, 
or in setting up a manufactory and employing labourers ; and in 
either case he would, cwteris faribus, raise prices. But instead of 
doing either of these things, he might very probably prefer to 
invest his fortune at interest ; which we shall suppose him to do in 
the most obvious way, by becoming a competitor for a portion of 
* [" Invested " substituted for " employed " in 3rd ed. (1852).] 



VALUE OF MONEY 497 

the stockj excliequer bills, railway debentures, mercantile bills, 
mortgages, &c., wbicli are at all times in the hands of the public. 
By doing this he would raise the prices of those different securities, 
or in other words would lower the rate of interest ; and since this 
would disturb the relation previously existing between the rate of 
interest on capital in the country itself, and that in foreign countries, 
it would probably induce some of those who had floating capital 
seeking employment, to send it abroad for foreign investment 
rather than buy securities at home at the advanced price. As 
much money might thus go out as had previously come in, while 
the prices of commodities would have shown no trace of its temporary 
presence. This is a case highly deserving of attention : and it is 
a fact now beginning to be recognised, that the passage of the 
precious metals from country to country is determined much more 
than was formerly supposed by the state of the loan market in 
different countries, and much less by the state of prices. 

Another point must be adverted to, in order to avoid serious 
error in the interpretation of mercantile phenomena. If there 
be, at any time, an increase in the number of money transactions, 
a thing continually liable to happen from differences in the activity 
of speculation, and even in the time of year (since certain kinds of 
business are transacted only at particular seasons) ; an increase 
of the currency which is only proportional to this increase of trans- 
actions, and is of no longer duration, has no tendency to raise 
prices. At the quarterly periods when the public dividends are 
paid at the Bank, a sudden increase takes place of the money in the 
hands of the public ; an increase estimated at from a fifth to two- 
fifths of the whole issues of the Bank of England. Yet this never 
has any effect on prices ; and in a very few weeks, the currency has 
again shrunk into its usual dimensions, by a mere reduction in the 
demands of the public (after so copious a supply of ready money) 
for accommodation from the Bank in the way of discount or loan. 
In like manner the currency of the agricultural districts fluctuates 
in amount at different seasons of the year. It is always lowest in 
August : "it rises generally towards Christmas, and obtains its 
greatest elevation about Lady-day, when the farmer commonly 
lays in his stock, and has to pay his rent and summer taxes," and 
when he therefore makes his principal applications to country 
bankers for loans. " Those variations occur with the same regularity 
as the season, and with just as little disturbance of the markets as 
the quarterly fluctuations of the notes of the Bank of England, 



498 BOOK III. CHAPTER VIII. § 4 

As soon as the extra payments have been completed, the superfluous** 
currency, which is estimated at half a million, " as certainly and 
immediately is reabsorbed and disappears." * 

If extra currency were not forthcoming to make these extra 
payments, one of three things must happen. Either the payments 
must be made without money, by a resort to some of those con- 
trivances by which its use is dispensed with ; or there must be an 
increase in the rapidity of circulation, the same sum of money 
being made to perform more payments ; or, if neither of these 
things took place, money to make the extra payments must be 
withdrawn from the market for commodities, and prices, conse- 
quently, must fall. An increase of the circulating medium, conform- 
able in extent and duration to the temporary stress of business, 
does not raise prices, but merely prevents this fall. 

The sequel of our investigation will point out many other qualifi- 
cations with which the proposition must be received, that the value 
of the circulating medium depends on the demand and supply, 
and is in the inverse ratio of the quantity ; ^ quahfications which, 
under a complex system of credit Hke that existing in England, 
render the proposition an extremely incorrect expression of the fact. 

* Fullarton, Regulation of Currencies, 2nd edit. pp. 87-9. 

^ [The rest of the sentence was added in the 4th ed. (1857), and the pro- 
position described as " a totally incorrect expression of the fact." In the 
6th ed. (1862) " extremely " was substituted for " totally."] 



CHAPTER IX 

OF THE VALUE OF MONEY, AS DEPENDENT ON COST OF PRODUCTION 

§ 1. But money, no more than commodities in general, has 
its value definitely determined by demand and supply. The ultimate 
regulator of its value is Cost of Production. 

We are supposing, of course, that things are left to themselves. 
Governments have not always left things to themselves. They 
have undertaken to prevent the quantity of money from adjusting 
itself according to spontaneous laws, and have endeavoured to 
regulate it at their pleasure ; generally with a view of keeping a 
greater quantity of money in the country, than would otherwise 
have remained there. It was, until lately, the policy of all govern- 
ments to interdict the exportation and the melting of money ; while, 
by encouraging the exportation and impeding the importation of 
other things, they endeavoured to have a stream of money constantly 
flowing in. By this course they gratified two prejudices ; they 
drew, or thought that they drew, more money into the country, 
which they believed to be tantamount to more wealth ; and they 
gave, or thought that they gave, to all producers and dealers, high 
prices, which, though no real advantage, people are always inclined 
to suppose to be one. 

In this attempt to regulate the value of money artificially by 
means of the supply, governments have never succeeded in the degree, 
or even in the manner, which they intended. Their prohibitions 
against exporting or melting the coin have never been effectual. 
A commodity of such small bulk in proportion to its value is so 
easily smuggled, and still more easily melted, that it has been 
impossible by the most stringent measures to prevent these opera- 
tions. All the risk which it was in the power of governments to 
attach to them, was outweighed by a very moderate profit.* In 

* The effect of the prohibition cannot, however, have been so entirely 
insignificant as it has been supposed to be by writers on the subject. The 



500 BOOK III CHAPTER IX. § I 

tlie more indirect mode of aiming at the same purpose, by throwing 
difficulties in the way of making the returns for exported goods in 
any other commodity than money, they have not been quite so 
unsuccessful. They have not, indeed, succeeded in making money 
flow continuously into the country ; but they have to a certain 
extent been able to keep it at a higher than its natural level ; and 
have, thus far, removed the value of money from exclusive depend- 
ence on the causes which fix the value of things not artificially 
interfered with. 

We are, however, to suppose a state, not of artificial regulation, 
but of freedom. In that state, and assuming no charge to be made 
for coinage, the value of money will conform to the value of the 
bullion of which it is made. A pound weight of gold or silver in 
coin, and the same weight in an ingot, will precisely exchange for 
one another. On the supposition of freedom, the metal cannot be 
worth more in the state of bullion than of coin ; for as it can be 
melted without any loss of time, and with hardly any expense, this 
would of course be done until the quantity in circulation was so 
much diminished as to equalize its value with that of the same 
weight in bulUon. It may be thought however that the coin, 
though it cannot be of less, may be, and being a manufactured 
article will naturally be, of greater value than the bullion contained 
in it, on the same principle on which linen cloth is of more value 
than an equal weight of linen yam. This would be true, were it 
not that Government, in this country, and in some others, coins 
money gratis for anyone who furnishes the metal. The labour and 
expense of coinage, when not charged to the possessor, do not 
raise the value of the article. If Government opened an office 
where, on delivery of a given weight of yam, it returned the same 
weight of cloth to any one who asked for it, cloth would be worth 
no more in the market than the yarn it contained. As soon as 
coin is worth a fraction more than the value of the bullion, it becomes 
the interest of the holders of bulHon to send it to be coined. If 
Government, however, throws the expense of coinage, as is reason- 
able, upon the holder, by making a charge to cover the expense (which 
is done by giving back rather less in coin than has been received 
in bullion, and is called levying a seignorage), the coin will rise, 

facts adduced by Mr. Fullarton, in the note to page 7 of his work on the Regu- 
lation of Currencies, shows that it required a greater percentage of difference in 
value between coin and bullion than has commonly been imagined, to bring tb^ 
coin to the melting-pot. 



VALUE OF MONEY 501 

to the extent of tlie seignorage, above tlie value of the bullion. 
If the Mint kept back one per cent to pay the expense of coinage, 
it would be against the interest of the holders of bullion to have 
it coined, until the coin was more valuable than the bullion by at 
least that fraction. The coin, therefore, would be kept one per 
cent higher in value, which could only be by keeping it one per cent 
less in quantity, than if its coinage were gratuitous. 

The Government might attempt to obtain a profit by the trans- 
action, and might lay on a seignorage calculated for that purpose ; 
but whatever they took for coinage beyond its expenses, would be 
so much profit on private coining. Coining, though not so easy an 
operation as melting, is far from a difiicult one, and, when the coin 
produced is of full weight and standard fineness, is very difiicult 
to detect. If, therefore, a profit could be made by coining good 
money, it would certainly be done : and the attempt to make 
seignorage a source of revenue would be defeated. Any attempt 
to keep the value of the coin at an artificial elevation, not by a 
seignorage, but by refusing to coin, would be frustrated in the same 
manner.* 

§ 2. The value of money, then, conforms, permanently, and, 
in a state of freedom, almost immediately, to the value of the 
metal of which it is made ; with the addition, or not, of the expenses 
of coinage, according as those expenses are borne by the individual 
or by the state. This simplifies extremely the question which we 
have here to consider : since gold and silver bullion are commodities 
like any others, and their value depends, like that of other things, 
on their cost of production. 

To the majority of civihzed countries, gold and silver are foreign 
products : and the circumstances which govern the values of foreign 
products, present some questions which we are not yet ready to 
examine. For the present, therefore, we must suppose the country 
which is the subject of our inquiries, to be supphed with gold and 

* In England, though there is no seignorage on gold coin, (the Mint re- 
turning in coin the same weight of pure metal which it receives in bullion,) 
there is a delay of a few weeks after the bulhon is deposited, before the coin 
can be obtained, occasioning a loss of interest, which, to the holder, is equivalent 
to a trifling seignorage. From this cause, the value of coin is in general 
slightly above that of the bulHon it contains. An ounce of gold, according 
to the quantity of metal in a sovereign, should be worth SI. Us. lO^d. ; but it 
was usually quoted at 21. 175. 6d., until the Bank Charter Act of 1844 made it 
imperative on the Bank to give its notes for all bullion offered to it at the rate 
oi Zl. lis. dd. 



502 BOOK in. CHAPTER IX. § 2 

silver by its own mines, reserving for future consideration how far 
our conclusions require modification to adapt them to the more 
usual case. 

Of the three classes into which commodities are divided — 
those absolutely limited in supply, those which may be had in 
unhmited quantity at a given cost of production, and those which 
may be had in unlimited quantity, but at an increasing cost of 
production — the precious metals, being the produce of mines, 
belong to the third class. Their natural value, therefore, is in the 
long run proportional to their cost of production in the most un- 
favourable existing circumstances, that is, at the worst mine which 
it is necessary to work in order to obtain the required supply. A 
pound weight of gold will, in the gold-producing countries, ulti- 
mately tend to exchange for as much of every other commodity as 
is produced at a cost equal to its own ; meaning by its own cost the 
cost in labour and expense, at the least productive sources of supply 
which the then existing demand makes it necessary to work. The 
average value of gold is made to conform to its natural value in 
the same manner as the values of other things are made to con- 
form to their natural value. Suppose that it were selling above its 
natural value ; that is, above the value which is an equivalent for 
the labour and expense of mining, and for the risks attending a 
branch of industry in which nine out of ten experiments have 
usually been failures. A part of the mass of floating capital which 
is on the look out for investment, would take the direction of mining 
enterprise ; the supply would thus be increased, and the value 
would fall. If, on the contrary, it were seUing below its natural 
value, miners would not be obtaining the ordinary profit ; they 
would slacken their works ; if the depreciation was great, some of 
the inferior mines would perhaps stop working altogether : and a 
falling off in the annual supply, preventing the annual wear and 
tear from being completely compensated, would by degrees reduce 
the quantity, and restore the value. 

When examined more closely, the following are the details of 
the process. If gold is above its natural or cost value — the coin, 
as we have seen, conforming in its value to the bullion — money 
will be of high value, and the prices of all things, labour included, 
will be low. These low prices will lower the expenses of all producers ; 
but as their returns will also be lowered, no advantage will be 
obtained by any producer, except the producer of gold : whose 
returns from his mine, not depending on price, will be the same as 



VALUE OF MONEY 603 

before, and his expenses being less, he will obtain extra profits, 
and will be stimulated to increase his production. E converso if 
the metal is below its natural value : since this is as much as to say 
that prices are high, and the money expenses of all producers 
unusually great : for this, however, all other producers will be 
compensated by increased money returns : the miner alone will 
extract from his mine no more metal than before, while his 
expenses will be greater : his profits therefore being diminished 
or annihilated, he will diminish his production, if not abandon 
his employment. 

In this manner it is that the value of money is made to conform 
to the cost of production of the metal of which it is made. It may 
be well, however, to repeat (what has been said before) that the 
adjustment takes a long time to effect, in the case of a commodity 
so generally desired and at the same time so durable as the precious 
metals. Being so largely used not only as money but for plate and 
ornament, there is at all times a very large quantity of these metals 
in existence : while they are so slowly worn out, that a comparatively 
small annual production is sufficient to keep up the supply, and to 
make any addition to it which may be required by the increase of 
goods to be circulated, or by the increased demand for gold and silver 
articles by wealthy consumers. Even if this small annual supply 
were stopt entirely, it would require many years to reduce the 
quantity so much as to make any very material difference in prices. 
The quantity may be increased much more rapidly than it can be 
diminished ; but the increase must be very great before it can 
make itself much felt over such a mass of the precious metals as 
exists in the whole commercial world. And hence the effects of all 
changes in the conditions of production of the precious metals are 
at first, and continue to be for many years, questions of quantity 
only, with little reference to cost of production, i More especially 
is this the case when, as at the present time, many new sources of 
supply have been simultaneously opened, most of them practicable 
by labour alone, without any capital in advance beyond a pickaxe 
and a week's food ; and when the operations are as yet wholly 
experimental, the comparative permanent productiveness of the 
different sources being entirely unascertained. 

§ 3. Since, however, the value of money really conforms, like 
that of other things, though more slowly, to its cost of production, 

^ [The final sentence of this paragraph was added in the 3rd ed. (1852).] 



504 BOOK III. CHAPTER IX. § 3 

some political economists have objected altogether to the statement 
that the value of money depends on its quantity combined with 
the rapidity of circulation ; which, they think, is assuming a law for 
money that does not exist for any other commodity, when the truth 
is that it is governed by the very same laws. To this we may 
answer, in the first place, that the statement in question assumes no 
peculiar law. It is simply the law of demand and supply, which is 
acknowledged to be applicable to all commodities, and which, in 
the case of money as of most other things, is controlled, but not set 
aside, by the law of cost of production, since cost of production 
would have no effect on value if it could have none on supply. But, 
secondly, there really is, in one respect, a closer connexion between 
the value of money and its quantity, than between the values of 
other things and their quantity. The value of other things con- 
forms to the changes in the cost of production, without requiring, 
as a condition, that there should be any actual alteration of the 
supply : the potential alteration is sufficient ; and if there even be 
an actual alteration, it is but a temporary one, except in so far as 
the altered value may make a difference in the demand, and so 
require an increase or diminution of supply, as a consequence, 
not a cause, of the alteration in value. Now this is also true of 
gold and silver, considered as articles of expenditure for ornament 
and luxury ; but it is not true of money. If the permanent cost 
of production of gold were reduced one-fourth, it might happen 
that there would not be more of it bought for plate, gilding, or 
jewellery, than before ; and if so, though the value would fall, the 
quantity extracted from the mines for these purposes would be no 
greater than previously. Not so with the portion used as money ; 
that portion could not fall in value one-fourth, unless actually 
increased one-fourth ; for, at prices one-fourth higher, one-fourth 
more money would be required to make the accustomed purchases ; 
and if this were not forthcoming, some of the commodities would be 
without purchasers, and prices could not be kept up. Alterations, 
therefore, in the cost of production of the precious metals, do not 
act upon the value of money except just in proportion as they 
increase or diminish its quantity ; which cannot be said of any 
other commodity. It would therefore, I conceive, be an error, 
both scientifically and practically, to discard the proposition 
which asserts a connexion between the value of money and its 
quantity. 
I It is evident, however, that the cost of production, in the long 



VALUE OF MONEY 505 

run, regulates the quantity?; and tliat every country (temporary 
fluctuations excepted) will possess, and have in circulation, just that 
quantity of money which will perform all the exchanges required 
of it, consistently with maintaining a value conformable to its cost 
of production. The prices of things will, on the average, be such 
that money will exchange for its own cost in all other goods : and, 
precisely because the quantity cannot be prevented from affecting 
the value, the quantity itself will (by a sort of self-acting machinery) 
be kept at the amount consistent with that standard of prices — at 
the amount necessary for performing, at those prices, all the business 
required of it. 

" The quantity wanted will depend partly on the cost of produc- 
ing gold, and partly on the rapidity of its circulation. The rapidity 
of circulation being given, it would depend on the cost of production : 
and the cost of production being given, the quantity of money 
would depend on the rapidity of its circulation." * After what has 
been already said, I hope that neither of these propositions stands 
in need of any further illustration. 

Money, then, like commodities in general, having a value de- 
pendent on, and proportional to, its cost of production ; the theory 
of money is, by the admission of this principle, stript of a great part 
of the mystery which apparently surrounded it. We must not 
forget, however, that this doctrine only applies to the places in 
which the precious metals are actually produced ; and that we 
have yet to enquire whether the law of the dependence of value on 
cost of production applies to the exchange of things produced at 
distant places. But however this may be, our propositions with 
respect to value wiU require no other alteration, where money is an 
imported commodity, than that of substituting for the cost of its 
production the cost of obtaining it in the country. Every foreign 
commodity is bought by giving for it some domestic production ; 
and the labour and capital which a foreign commodity costs to us 
is the labour and capital expended in producing the quantity of 
our own goods which we give in exchange for it. What this quantity 
depends upon, — what determines the proportions of interchange 
between the productions of one country and those of another, — is 
indeed a question of somewhat greater complexity than those we 

* From some printed, but not published, Lectures of Mr. Senior : in which 
the great differences in the business done by money, as well as in the rapidity 
of its circulation in different states of society and civilization, are interestingly 
illustrated. 



506 BOOK III. CHAPTER IX. § 3 

have hitherto considered. But this at least is indisputable, that 
within the country itself the value of imported commodities is 
determined by the value, and consequently by the cost of production, 
of the equivalent given for them ; and money, where it is an imported 
commodity, is subject to the same law.i 

* [See Appendix T. The Value of Money.'] 



CHAPTER X 

OP A DOUBLE STANDARD, AND SUBSIDIARY COINS 

§ 1. Though the qualities necessary to fit any commodity 
for being used as money are rarely united in any considerable 
perfection, there are two commodities which possess them in an 
eminent, and nearly an equal degree ; the two precious metals, as 
they are called ; gold and silver. Some nations have accordingly 
attempted to compose their circulating medium of these two metals 
indiscriminately. 

There is an obvious convenience in making use of the more 
costly metal for larger payments and the cheaper one for smaller : 
and the only question relates to the mode in which this can best 
be done. The mode most frequently adopted has been to establish 
between the two metals a fixed proportion ; to decide, for example, 
that a gold coin called a sovereign should be equivalent to twenty of 
the silver coins called shillings : both the one and the other being 
called, in the ordinary money of account of the country, by the same 
denomination, a pound : and it being left free to every one who has 
a pound to pay, either to pay it in the one metal or in the other. 

At the time when the valuation of the two metals relatively to 
3ach other, say twenty shilUngs to the sovereign, or twenty-one 
shilHngs to the guinea, was first made, the proportion probably 
corresponded, as nearly as it could be made to do, with the ordinary 
relative values of the two metals grounded on their cost of produc- 
tion : and if those natural or cost values always continued to bear 
the same ratio to one another, the arrangement would be unobjec- 
tionable. This, however, is far from being the fact. Gold and silver, 
though the least variable in value of all commodities, are not in- 
variable, and do not always vary simultaneously. Silver, for 
example, was lowered in permanent value more than gold, by the 
discovery of the American mines ; and those small variations of 
value which take place occasionally do not affect both metals alike. 



508 BOOK 111. CHAPTER X. § 2 

Suppose such a variation to take place : the value of the two metals 
relatively to one another no longer agreeing with their rated pro- 
portion, one or other of them will now be rated below its bullion 
value, and there will be a profit to be made by melting it. 

Suppose, for example, that gold rises in value relatively to 
silver, so that the quantity of gold in a sovereign is now worth more 
than the quantity of silver in twenty shillings. Two consequences 
will ensue. No debtor will any longer find it his interest to pay in 
gold. He will always pay in silver, because twenty shillings are a 
legal tender for a debt of one pound, and he can procure silver 
convertible into twenty shillings for less gold than that contained 
in a sovereign. The other consequence will be, that unless a sovereign 
can be sold for more than twenty shillings, all the sovereigns will be 
melted, since as bulHon they will purchase a greater number of 
shillings than they exchange for as coin. The converse of all this 
would happen if silver, instead of gold, were the metal which had 
risen in comparative value. A sovereign would not now be worth 
so much as twenty shillings, and whoever had a pound to pay would 
prefer paying it by a sovereign ; while the silver coins would be 
collected for the purpose of being melted, and sold as bullion for gold 
at their real value, that is, above the legal valuation. The money 
of the community, therefore, would never really consist of both 
metals, but of the one only which, at the particular time, best suited 
the interest of debtors ; and the standard of the currency would 
be constantly liable to change from the one metal to the other, at a 
loss, on each change, of the expense of coinage on the metal which 
fell out of use. 

It appears, therefore, that the value of money is liable to more 
frequent fluctuations when both metals are a legal tender at a fixed 
valuation, than when the exclusive standard of the currency is either 
gold or silver. Instead of being only affected by variations in the 
cost of production of one metal it is subject to derangement from 
those of two. The particular kind of variation to which a currency 
is rendered more Hable by having two legal standards, is a fall of 
value, or what is commonly called a depreciation ; since practically 
that one of the two metals will always be the standard, of which the 
real has fallen below the rated value. If the tendency of the metals 
be to rise in value, all payments will be made in the one which has 
risen least ; and if to fall, then in that which has fallen most. 

§ 2. The plan of a double standard is still occasionally brought 



DOUBLE STANDARD, AKD SUBSIDIARY COINS 6d0 

forward by here and there a writer or orator as a great improvement 
in currency. It is probable that, with most of its adherents, its 
chief merit is its tendency to a sort of depreciation, there being at 
all times abundance of supporters for any mode, either open or 
covert, of lowering the standard. Some, however, are influenced by 
an exaggerated estimate of an advantage which to a certain extent 
is real, that of being able to have recourse, for replenishing the 
circulation, to the united stock of gold and silver in the commercial 
world, instead of being confined to one of them, which, from acci- 
dental absorption, may not be obtainable with sufficient rapidity. 
The advantage without the disadvantages of a double standard, 
seems to be best obtained by those nations with whom one only of 
the two metals is a legal tender, but the other also is coined, and 
allowed to pass for whatever value the market assigns to it.^ 

When this plan is adopted, it is naturally the more costly metal 
which is left to be bought and sold as an article of commerce. But 
nations which, like England, adopt the more costly of the two as 
their standard, resort to a different expedient for retaining them both 
in circulation, namely, to make silver a legal tender, but only for 
small payments. In England, no one can be compelled to receive 
silver in payment for a larger amount. than forty shillings. With 
this regulation there is necessarily combined another, namely, that 
silver coin should be rated, in comparison with gold, somewhat above 
its intrinsic value ; that there should not be, in twenty shillings, as 
much silver as is worth a sovereign : for if there were, a very slight 
turn of the market in its favour would make it worth more than a 
sovereign, and it would be profitable to melt the silver coin. The 
over- valuation of the silver coin creates an inducement to buy silver 
and send it to the Mint to be coined, since it is given back at a higher 
value than properly belongs to it : this, however, has been guarded 

* [The following passage, which occurred in the original ed. (1848) at this 
point, was omitted in the 3rd ed. (1852) : 

" This is the case in France. Silver alone is (I believe) a legal tender, 
and all sums are expressed and accounts kept in francs, a silver coin. Gold 
is also coined, for convenience, but does not pass at a fixed valuation : the 
twenty francs marked on a napoleon are merely nominal, napoleons being 
never to be bought for that sum, but always bearing a small premium, or 
agio as it is called; though, as the agio is very trifling, (the bulhon value differing 
very Httle from twenty francs), it is seldom possible to pass u napoleon for 
more than that sum in ordinary retail transactions. Silver, then, is the real 
money of the country, and gold coin only a merchandise ; but, though not 
a legal tender, it answers all the real purposes of one, since no creditor is at 
all l^ely to refuse receiving it at the market price, in payment of his debt."] 



&1U J5UUJ^ ill. UMAflJlilt A. § Z 

against, by limiting the quantity of tlie silver coinage, wHcli is not 
left, like that of gold, to the discretion of individuals, but is deter- 
mined by the government, and restricted to the amount supposed 
to be required for small payments. The only precaution necessary 
is, not to put so high a valuation upon the silver, as to hold out a 
strong temptation to private coining.^ 

1 [See Appendix U. BimetalUsnk} 



CHAPTER XI 

OP CREDIT, AS A SUBSTITUTE FOR MONEY 

§ 1. The functions of credit have been a subject of as much 
misunderstanding and as much confusion of ideas, as any single topic 
in Political Economy. This is not owing to any pecuUar difficulty 
in the theory of the subject, but to the complex nature of some of the 
mercantile phenomena arising from the forms in which credit clothes 
itself ; by which attention is diverted from the properties of credit 
in general, to the peculiarities of its particular forms. 

As a specimen of the confused notions entertained respecting the 
nature of credit, we may advert to the exaggerated language so often 
used respecting its national importance. Credit has a great, butij 
not, as many people seem to suppose, a magical power ; it cannot jj 
make something out of nothing. How often is an extension of 
credit talked of as equivalent to a creation of capital, or as if credit 
actually were capital. It seems strange that there should be any 
need to point out, that credit being only permission to use the capital 
of another person, the means of production cannot be increased by 
it, but only transferred. If the borrower's means of production 
and of employing labour are increased by the credit given him, the 
lender's are as much diminished. The same sum cannot be used as j 
capital both by the owner and also by the person to whom it is lent : \ 
it cannot supply its entire value in wages, tools, and materials, to 
two sets of labourers at once. It is true that the capital which A 
has borrowed from B, and makes use of in his business, still forms 
part of the wealth of B for other purposes : he can enter into arrange- 
ments in rehance on it, and can borrow, when needful, an equivalent 
sum on the security of it ; so that to a superficial eye it might seem 
as if both B and A had the use of it at once. But the smallest con- 
sideration will show that when B has parted with his capital to A, 
the use of it as capital rests with A alone, and that B has no other 
service from it than in so far as his ultimate claim upon it serves him 



512 BOOK III. CHAPTER XL § 2 

to obtain the use of another capital from a third person C. All 
capital (not his own) of which any person has really the use, is, and 
must be, so much subtracted from the capital of some one else.* 

§ 2. But though credit is but a transfer of capital from hand to 
hand, it is generally, and naturally, a transfer to hands more com- 
petent to employ the capital efficiently in production. If there 
were no such thing as credit, or if, from general insecurity and want 
of confidence, it were scantily practised, many persons who possess 
more or less of capital, but who, from their occupations, or for want 
of the necessary skill and knowledge, cannot personally superintend 
its employment, would derive no benefit from it : their funds would 
either lie idle, or would be, perhaps, wasted and annihilated in 
unskilful attempts to make them yield a profit. All this capital is 
now lent at interest, and made available for production. Capital 
thus circumstanced forms a large portion of the productive resources 
of any commercial country ; and is naturally attracted to those 
producers or traders who, being in the greatest business, have the 
means of employing it to most advantage ; because such are both 
the most desirous to obtain it, and able to give the best security. 
Although, therefore, the productive funds of the country are not 
increased by credit, they are called into a more complete state of 
productive activity. As the confidence on which credit is grounded 

* [1865] To make the proposition in the text strictly true, a corrective, 
though a very sKght one, requires to be made. The circulating medium 
existing in a country at a given time, is partly employed in purchases for pro- 
ductive, and partly for unproductive consumption. According as a larger 
proportion of it is employed in the one way or in the other, the real capital of 
the country is greater or less. If, then, an addition were made to the circulating 
medium in the hands of unproductive consumers exclusively, a larger portion of 
the existing stock of commodities would be bought for unproductive consump- 
tion, and a smaller for a productive, which state of things, while it lasted, would 
be equivalent to a diminution of capital ; and on the contrary, if the addition 
made be to the portion of the circulating medium which is in the hands of 
producers, and destined for their business, a greater portion of the commodities 
in the country will for the present be employed as capital, and a less portion 
unproductively. Now an effect of this latter character naturally attends some 
extensions of credit, especially when taking place in the form of bank notes, 
or other instruments of exchange. The additional bank notes are, in ordinary 
course, first issued to producers or dealers, to be employed as capital ; and 
though the stock of commodities in the country is no greater than before, yet as 
a greater share of that stock now comes by purchase into the hands of producers 
and dealers, to that extent what would have been unproductively consumed 
is applied to production, and there is a real increase of capital.^ The effect 
ceases, and a counter-process takes place, when the additional credit is stopped, 
and the notes called in. 



CREDIT AS A SUBSTITUTE FOR MONEY 513 

extends itself, means are developed by which even the smallest 
portions of capital, the sums which each person keeps by him to meet 
contingencies, are made available for productive uses. The principal 
instruments for this purpose are banks of deposit. Where these do 
not exist, a prudent person must keep a sufficient sum unemployed 
in his own possession, to meet every demand which he has even a 
shght reason for thinking himself Uable to. When the practice, 
however, has grown up of keeping this reserve not in his own custody 
but with a banker, many small sums, previously lying idle, becoming 
aggregated in the banker's hands ; and the banker, being taught by 
experience what proportion of the amount is Ukely to be wanted in 
a given time, and knowing that if one depositor happens to require 
more than the average, another will require less, is able to lend the 
remainder, that is, the far greater part, to producers and dealers : 
thereby adding the amount, not indeed to the capital in existence, 
but to that in employment, and making a corresponding addition 
to the aggregate production of the community. 

While credit is thus indispensable for rendering the whole capital^ 
of the country productive, it is also a means by which the industrial 
talent of the country is turned to better account for purposes of 
production. Many a person who has either no capital of his own, 
or very little, but who has qualifications for business which are 
known and appreciated by some possessors of capital, is enabled 
to obtain either advances in money, or more frequently goods on 
credit, by which his industrial capacities are made instrumental to 
the increase of the public wealth ; and this benefit will be reaped 
far more largely, whenever, through better laws and better education, 
the community shall have made such progress in integrity, that 
personal character can be accepted as a sufficient guarantee not only 
against dishonestly appropriating, but against dishonestly risking, 
what belongs to another. 

Such are, in the most general point of view, the uses of credit to 
the productive resources of the world. But these considerations 
only apply to the credit given to the industrious classes — to pro- 
ducers and dealers. Credit given by dealers to unproductive 
consumers is never an addition, but always a detriment, to the sources 
of public wealth. It makes over in temporary use, not the capital of 
the unproductive classes to the productive, but that of the produc- 
tive to the improductive. If A, a dealer, supplies goods to B, a 
landowner or annuitant, to be paid for at the end of five years, as 
much of the capital of A as is equal to the value of these goods 



514 BOOK III. CHAPTER XL § 3 

remains for five years unproductive. During such a period, if pay- 
ment had been made at once, the sum might have been several times 
expended and replaced, and goods to the amount might have been 
several times produced, consumed, and reproduced: consequently 
B's withholding lOOL for five years, even if he pays at last, has cost 
to the labouring classes of the community during that period an 
absolute loss of probably several times that amount. A, indivi- 
dually, is compensated, by putting a higher price upon his goods, 
which is ultimately paid by B : but there is no compensation 
made to the labouring classes, the chief sufferers by every 
diversion ^f capital, whether permanently or temporarily, to 
unproductive uses. The country has had lOOl. less of capital 
during those five years, B having taken that amount from A's 
capital, and spent it unproductively, in anticipation of his own 
means, and having only after five years set apart a sum from his 
income and converted it into capital for the purpose of indemni- 
fying A. 

§ 3. Thus far of the general function of Credit in production. 
It is not a productive power in itself, though, without it, the produc- 
tive powers already existing could not be brought into complete 
employment. But a more intricate portion of the theory of Credit 
is its influence on prices ; the chief cause of most of the mercantile 
phenomena which perplex observers. In a state of commerce in 
which much credit is habitually given, general prices at any moment 
depend much more upon the state of credit than upon the quantity of 
money. For credit, though it is not productive power, is purchasing 
power ; and a person who, having credit, avails himself of it in the 
purchase of goods, creates just as much demand for the goods, and 
tends quite as much to raise their price, as if he made an equal 
amount of purchases with ready money. 

The credit which we are now called upon to consider, as a distinct 
purchasing power, independent of money, is of course not credit in 
its simplest form, that of money lent by one person to another, and 
paid directly into his hands ; for when the borrower expends this in 
purchases, he makes the purchases with money, not credit, and 
exerts no purchasing power over and above that conferred by the 
money. The forms of credit which create purchasing power are 
those in which no money passes at the time, and very often none 
passes at all, the transaction being included with a mass of other 
transactions in an account, and nothing paid but a balance. This 



CREDIT AS A SUBSTITUTE FOR MONEY 615 

takes place in a variety of ways, which we shall proceed to examine, 
beginning, as is our custom, with the simplest. 

First : Suppose A and B to be two dealers, who have transactions 
with each other both as buyers and as sellers. A buys from B on credit. 
B does the like with respect to A. At the end of the year, the sum 
of A's debts to B is set against the sum of B's debts to A, and it is 
ascertained to which side a balance is due. This balance, which may 
be less than the amount of many of the transactions singly, and is 
necessarily less than the sum of the transactions, is all that is paid 
in money ; and perhaps even this is not paid, but carried over in an 
account current to the next year. A single payment of a hundred 
pounds may in this manner suffice to liquidate a long series of 
transactions, some of them to the value of thousands. 

But secondly : The debts of A to B may be paid without the 
intervention of money, even though there be no reciprocal debts of B 
to A. A may satisfy B by making over to him a debt due to himself 
from a third person, C. This is conveniently done by means of a 
written instrument, called a bill of exchange, which is, in fact, a 
transferable order by a creditor upon his debtor, and when accepted 
by the debtor, that is, authenticated by his signature, becomes an 
acknowledgment of debt. 

§ 4. Bills of exchange were first introduced to save the expense 
and risk of transporting the precious metals from place to place. 
" Let it be supposed," says Mr. Henry Thornton,* " that there are 
in London ten manufacturers who sell their article to ten shopkeepers 
in York, by whom it is retailed ; and that there are in York ten 
manufacturers of another commodity, who sell it to ten shopkeepers 
in London. There would be no occasion for the ten shopkeepers in 
London to send yearly to York guineas for the payment of the 
York manufacturers, and for the ten York shopkeepers to send 
yearly as many guineas to London. It would only be necessary for 
the York manufacturers to receive from each of the shopkeepers at 
their own door the money in question, giving in return letters which 
should acknowledge the receipt of it ; and which should also direct 
the money, lying ready in the hands of their debtors in London, to be 
paid to the London manufacturers, so as to cancel the debt in London 

* Enquiry into the Nature and Effects of the Paper Credit of Great Britain, 
p. 24. This work, published in 1802, is even now [1848] the clearest exposition 
that I am acquainted with, in the English language, of the modes in which 
credit is given and taken in a mercantile coanmunity. 



616 BOOK III. CHAPTER XI. § 4 

in the same manner as that at York. The expense and the risk of 
all transmission of money would thus be saved. Letters ordering 
the transfer of the debt are termed, in the language of the present 
day, bills of exchange. They are bills by which the debt of one 
person is exchanged for the debt of another ; and the debt, perhaps, 
which is due in one place, for the debt due in another." 

Bills of exchange having been found convenient as means of 
paying debts at distant places without the expense of transporting 
the precious metals, their use was afterwards greatly extended from 
another motive. It is usual in every trade to give a certain length 
of credit for goods bought : three months, six months, a year, even 
two years, according to the convenience or custom of the particular 
trade. A dealer who has sold goods, for which he is to be paid in 
six months, but who desires to receive payment sooner, draws a bill 
on his debtor payable in six months, and gets the bill discounted by 
a banker or other money-lender, that is, transfers the bill to him, 
receiving the amount, minus interest for the time it has still to run. 
It has become one of the chief functions of bills of exchange to serve 
as a means by which a debt due from one person can thus be made 
available for obtaining credit from another. The convenience of the 
expedient has led to the frequent creation of bills of exchange not 
grounded on any debt previously due to the drawer of the bill by 
the person on whom it is drawn. These are called accommodation 
bills ; and sometimes, with a tinge of disapprobation, fictitious bills. 
Their nature is so clearly stated, and with such judicious remarks, 
by the author whom I have just quoted, that I shall transcribe the 
entire passage.* 

'' A, being in want of 1001., requests B to accept a note or bill 
drawn at two months, which B, therefore, on the face of it, is bound to 
pay ; it is understood, however, that A will take care either to dis- 
charge the bill himself, or to furnish B with the means of paying it. 
A obtains ready money for the bill on the joint credit of the two 
parties. A fulfils his promise of paying it when due, and thus con- 
cludes the transaction. This service rendered by B to A is, however, 
not unhkely to be requited, at a more or less distant period, by a 
similar acceptance of a bill on A, drawn and discounted for B's 
convenience. 

*' Let us now compare such a bill with a real bill. Let us consider 
in what points they differ, or seem to differ ; and in what they agree. 

" They agree, inasmuch as each is a discountable article ; each 

♦ Pp. 29-33. 



CREDIT AS A SUBSTITUTE FOR MONEY 517 

has also been created for the purpose of being discounted ; and each 
is, perhaps, discounted in fact. Each, therefore, serves equally 
to supply means of speculation to the merchant. So far, moreover, 
as bills and notes constitute -what is called the circulating medium, 
or paper currency of the country, and prevent the use of guineas, 
the fictitious and the real bill are upon an equality ; and if the price 
of commodities be raised in proportion to the quantity of paper 
currency, the one contributes to that rise exactly in the same manner 
as the other. 

*' Before we come to the points in which they differ, let us advert 
to one point in which they are commonly supposed to be unlike ; 
but in which they cannot be said always or necessarily to differ. 

" Real notes (it is sometimes said) represent actual property. 
There are actual goods in existence, which are the counterpart to 
every real note. Notes which are not drawn in consequence of a 
sale of goods, are a species of false wealth, by which a nation is 
deceived. These supply only an imaginary capital ; the others 
indicate one that is real. 

" In answer to this statement it maybe observed, first, that the 
notes given in consequence of a real sale of goods cannot be considered 
as on that account certainly representing any actual property. 
Suppose that A sells lOOL worth of goods to B at six months' credit, 
and takes a bill at six months for it ; and that B, within a month after, 
sells the same goods, at a hke credit, to C, taking a like bill ; and 
again, that C, after another month, sells them to D, taking a like bill, 
and so on. There may then, at the end of six months, be six bills 
of 100?. each, existing at the same time ; and every one of these 
may possibly have been discounted. Of all these bills, then, only 
one represents any actual property. 

" In order to justify the supposition that a real bill (as it is 
called) represents actual property, there ought to be some power in 
the bill-holder to prevent the property which the bill represents, 
from being turned to other purposes than that of paying the bill in 
question. No such power exists ; neither the man who holds the real 
bill, nor the man who discomits it, has any property in the specific 
goods for which it was given : he as much trusts to the general 
ability to pay of the giver of the bill, as the holder of any fictitious 
bill does. The fictitious bill may, in many cases, be a bill given by 
a person having a large and known capital, a part of which the 
fictitious bill may be said in that case to represent. The supposition 
that real bills represent property, and that fictitious bills do not, 



518 BOOK III. CHAPTER KI. § 4 

seems, therefore, to be one by which more than justice is done to 
one of these species of bills, and something less than justice to the 
other. 

'' We come next to some points in which they differ. 

" First, the fictitious note, or note of accommodation; is liable 
to the objection that it professes to be what it is not. This objection, 
however, Ues only against those fictitious bills which are passed as 
real. In many cases it is sufficiently obvious what they are. 
Secondly, the fictitious bill is, in general, less Hkely to be punctually 
paid than the real one. There is a general presumption, that the 
dealer in fictitious bills is a man who is a more adventurous specu- 
lator than he who carefully abstains from them. It follows, thirdly, 
that fictitious bills, besides being less safe, are less subject to hmita- 
tion as to their quantity. The extent of a man's actual sales 
forms some hmit to the amount of his real notes ; and as it is highly 
desirable in commerce that credit should be dealt out to aU persons 
in some sort of regular and due proportion, the measure of a man's 
actual sales, certified by the appearance of his bills drawn in virtue 
of those sales, is some rule in the case, though a very imperfect one 
in many respects. 

*' A fictitious bill, or bill of accommodation, is evidently in 
substance the same as any common promissory note ; and even 
better in this respect, that there is but one security to the promis- 
sory note, whereas in the case of the bill of accommodation, there are 
two. So much jealousy subsists lest traders should push their 
means of raising money too far, that paper, the same in its general 
nature with that which is given, being the only paper which can be 
given, by men out of business, is deemed somewhat discreditable 
when coming from a merchant. And because such paper, when in 
the merchant's hand, necessarily imitates the paper which passes 
on the occasion of a sale of goods, the epithet fictitious has been cast 
upon it ; an epithet which has seemed to countenance the confused 
and mistaken notion, that there is something altogether false and 
delusive in the nature of a certain part both of the paper and of the 
apparent wealth of the country." 

A bill of exchange, when merely discounted, and kept in the 
portfoHo of the discounter until it falls due, does not perform the 
functions or supply the place of money, but is itself bought and sold 
for money. It is no more currency than the pubhc funds, or any other 
securities. But when a bill drawn upon one person is paid to another 
(or even to the same person) in discharge of a debt or a pecimiary 



CREDIT AS A SUBSTITUTE FOR MONEY 519 

claim, it does sometliing for whicli, if the bill did not exist, money 
would be required : it performs the functions of currency. This is 
a use to which bills of exchange are often applied. "They not only," 
continues Mr. Thornton,* " spare the use of ready money; they also 
occupy its place in many cases. Let us imagine a farmer in the 
country to discharge a debt of 101. to his neighbouring grocer, by 
giving him a bill for that sum, drawn on his cornfactor in London 
for grain sold in the metropolis ; and the grocer to transmit the bill, 
he having previously indorsed it, to a neighbouring sugar-baker, 
in discharge of a like debt ; and the sugar-baker to send it, when again 
indorsed, to a West India merchant in an outport, and the West 
India merchant to deliver it to his country banker, who also indorses 
it, and sends it into further circulation. The bill in this case will 
have effected five payments, exactly as if it were a 101. note payable 
to a bearer on demand. A multitude of bills pass between trader 
and trader in the country, in the manner which has been described; 
and they evidently form, in the strictest sense, a part of the circu- 
lating medium of the kingdom." 

Many bills, both domestic and foreign, are at last presented for 
payment quite covered with indorsements, each of which repre- 
sents either a fresh discounting, or a pecuniary transaction in which 
the bill has performed the functions of money. Within the present 
generation,! the circulating medium of Lancashire, for sums above 
five pounds, was almost entirely composed of such bills. • 

§ 5. A third form in which credit is employed as a substitute 
for currency, is that of promissory notes. A bill drawn upon any 
one and accepted by him, and a note of hand by him promising 
to pay the same sum, are, as far as he is concerned, exactly equiva- 
lent, except that the former commonly bears interest and the latter 
generally does not ; and that the former is commonly payable only 
after a certain lapse of time, and the latter payable at sight. But it is 
chiefly in the latter form that it has become, in commercial countries, 
an express occupation to issue such substitutes for money. Dealers 
in money (as lenders by profession are improperly called) desire, 
like other dealers, to stretch their operations beyond what can 
be carried on by their own means : they wish to lend, not their 
capital merely, but their credit, and not only such portion of their 

* P. 40. 

1 [So from the 4th ed. (1857). The original (1848) ran: "Up to twenty 
years ago."] 



520 BOOK III. CHAPTER XI. § 6 

credit as consists of funds actually deposited with them, but their 
power of obtaining credit from the public generally, so far as they 
think they can safely employ it. This is done in a very convenient 
manner by lending their own promissory notes payable to bearer 
on demand : the borrower being willing to accept these as so mucb 
money, because the credit of the lender makes other people willingly 
receive them on the same footing, in purchases or other payments. 
These notes, therefore, perform all the functions of currency, and 
render an equivalent amount of money which was previously in 
circulation, unnecessary. As, however, being payable on demand, 
they may be at any time returned on the issuer, and money demanded 
for them, he must, on pain of bankruptcy, keep by him as much 
money as will enable him to meet any claims of that sort which 
can be expected to occur within the time necessary for providing 
himself with more : and prudence also requires that he should 
not attempt to issue notes beyond the amount which experience 
shows can remain in circulation without being presented for 
payment. 

The convenience of this mode of (as it were) coining credit, 
having once been discovered, governments have availed themselves 
of the same expedient, and have issued their own promissory 
notes in payment of their expenses ; a resource the more useful, 
because it is the only mode in which they are able to borrow money 
without paying interest, their promises to pay on demand being, 
in the estimation of the holders, equivalent to money in hand. 
The practical differences between such government notes and the 
issues of private bankers, and the further diversities of which this 
class of substitutes for money are susceptible, will be considered 
presently. 

§ 6. A fourth mode of making credit answer the purposes of 
money, by which, when carried far enough, money may be very 
completely superseded, consists in making payments by cheques. 
The custom of keeping the spare cash reserved for immediate use 
or against contingent demands, in the hands of a banker, and making 
all payments, except small ones, by orders on bankers, is in this 
country spreading to a continually larger portion of the public. 
If the person making the payment, and the person receiving it, 
keep their money with the same banker, the payment takes place 
without any intervention of money, by the mere transfer of its 
amount in the banker's books from the credit of the payer to that 



CREDIT AS A SUBSTITUTE FOR MONEY 621 

of the receiver. If all persons in London kept their cash at the 
same banker's, and made all their payments by means of cheques, 
no money would be required or used for any transactions beginning 
and terminating in London. This ideal limit is almost attained 
in fact, so far as regards transactions between dealers. It is chiefly 
in the retail transactions between dealers and consumers, and in 
the payment of wages, that money or bank notes now pass, and 
then only when the amounts are small. In London, even shop- 
keepers of any amount of capital or extent of business have generally 
an account with a banker ; which, besides the safety and convenience 
of the practice, is to their advantage in another respect, by giving 
them an understood claim to have their bills discounted in cases 
when they could not otherwise expect it. As for the merchants 
and larger dealers, they habitually make all payments in the course 
of their business by cheques. They do not, however, aU deal with 
the same banker, and when A gives a cheque to B, B usually pays 
it not into the same but into some other bank. But the convenience 
of business has given birth to an arrangement which makes all 
the banking houses of the City of London, for certain purposes, 
virtually one establishment. A banker does not send the cheques 
which are paid into his banking house, to the banks on which 
they are drawn, and demand money for them. There is a building 
called the Clearing-house, to which every City banker sends, each 
afternoon, all the cheques on other bankers which he has received 
during the day, and they are there exchanged for the cheques on 
him which have come into the hands of other bankers, the balances 
only being paid in money ; ^ or even these not in money, but in 
cheques on the Bank of England. By this contrivance, all the 
business transactions of the City of London during that day, amount- 
ing often to milHons of pounds, and a vast amount besides of 
country transactions, represented by bills which country bankers 
have drawn upon their London correspondents, are [1848] liquidated 
by payments not exceeding on the average 200,000?.* 

By means of the various instruments of credit which have now 

1 [The concluding clause of this sentence was added in the 4th ed. (1857).] 
* According to IVIr. Tooke {Inquiry into the Currency Principle, p. 27) the 
adjustments of the Clearing-house " in the year 1839 amounted to 954,401, 600Z., 
making an average amount of payments of upwards of 3,000,000Z. of biUs of 
exchange and cheques daily effected through the medium of Httle more than 
200,000Z. of bank notes." — [1862] At present a very much greater amount of 
transactions is daily liquidated, without bank notes at all, cheques on the Bank 
of England supplying their place. 



622 BOOK m. CHAPTER XI. § 6 

been explained, the immense business of a country like Great 
Britain is transacted witb an amount of the precious metals sur- 
prisingly small ; many times smaller, in proportion to the pecuniary 
value of the commodities bought and sold, than is found necessary 
in France, or any other country in which, the habit and the dis- 
position to give credit not being so generally diffused, these " econo- 
mizing expedients," as they have been called, are not practised to 
the same extent. What becomes of the money thus superseded 
in its functions, and by what process it is made to disappear from 
circulation, are questions the discussion of which must be for a 
short time postponed. 



CHAPTER XII 

INFLUENCE OP CREDIT ON PRICES 

§ 1. Having now formed a general idea of the modes in which 
credit is made available as a substitute for money, we have to con- 
sider in what manner the use of these substitutes affects the value 
of money, or, what is equivalent, the prices of commodities. It 
is hardly necessary to say that the permanent value of money — 
the natural and average prices of commodities — are not in question 
here. These are determined by the cost of producing or of obtaining 
the precious metals. An ounce of gold or silver will in the long run 
exchange for as much of every other commodity, as can be produced 
or imported at the same cost with itself. And an order, or note of 
hand, or bill payable at sight, for an ounce of gold, -while the credit 
of the giver is unimpaired, is worth neither more nor less than the 
gold itself. 

It is not, however, with ultimate or average, but with imme- 
diate and temporary prices, that we are now concerned. These, 
as we have seen, may deviate very widely from the standard of cost 
of production. Among other causes of fluctuation, one we have 
found to be the quantity of money in circulation. Other things 
being the same, an increase of the money in circulation raises prices, 
a diminution lowers them. If more money is thrown into circulation 
than the quantity which can circulate at a value conformable to its 
cost of production, the value of money, so long as the excess lasts, 
will remain below the standard of cost of production, and general 
prices will be sustained above the natural rate. 

But we have now found that there are other things, such as 
bank notes, bills of exchange, and cheques, which circulate as 
money, and perform all the functions of it : and the question 
arises. Do these various substitutes operate on prices in the 
same maimer as money itself ? Does an increase in the quantity 
of transferable paper tend to raise prices, in the same maimer 



524 BOOK III. CHAPTER XII. § 2 

and degree as an increase in the quantity of money ? There has 
been no small amount of discussion on this point among writers 
of currency, without any result so conclusive as to have yet obtained 
general assent. 

I apprehend that bank notes, bills, or cheques, as such, do not act 
on prices at all. What does act on prices is Credit, in whatever shape 
given, and whether it gives rise to any transferable instruments 
capable of passing into circulation or not. 

I proceed to explain and substantiate this opinion. 

§ 2. Money acts upon prices in no other way than by being 
tendered in exchange for commodities. The demand which influ- 
ences the prices of commodities consists of the money offered for them. 
But the money offered is not the same thing with the money 
possessed. It is sometimes less, sometimes very much more. In 
the long run indeed, the money which people lay out will be neither 
more nor less than the money which they have to lay out : but this 
is far from being the case at any given time. Sometimes they keep 
money by them for fear of an emergency, or in expectation of a 
more advantageous opportunity for expending it. In that case the 
money is said not to be in circulation : in plainer language, it is 
not offered, nor about to be offered, for commodities. Money not in 
circulation has no effect on prices. The converse, however, is a 
much commoner case ; people make purchases with money not in 
their possession. An article, for instance, which is paid for by a 
cheque on a banker, is bought with money which not only is not in 
the payer's possession, but generally not even in the banker's, 
having been lent by him (all but the usual reserve) to other persons. 
We just now made the imaginary supposition that all persons dealt 
with a bank, and all with the same bank, payments being universally 
made by cheques. In this ideal case, there would be no money 
anywhere except in the hands of the banker : who might then 
safely part with aU of it, by selling it as bullion, or lending it, to be 
sent out of the country in exchange for goods or foreign securities. 
But though there would then be no money in possession, or ultimately 
perhaps even in existence, money would be offered, and commodities 
bought with it, just as at present. People would continue to reckon 
their incomes and their capitals in money, and to make their usual 
purchases with orders for the receipt of a thing which would have 
literally ceased to exist. There would be in all this nothing to com- 
plain of, so long as the money, in disappearing, left an equivalent 



INFLUENCE OF CREDIT ON PRICES 525 

value in otlier things, applicable when required to the reimbursement 
of those to whom the money originally belonged. 

In the case however of payment by cheques, the purchases are 
at any rate made, though not with money in the buyer's possession, 
yet with money to which he has a right. But he may make purchases 
with money which he only expects to have, or even only pretends 
to expect. He may obtain goods in return for his acceptances 
payable at a future time ; or on his note of hand ; or on a simple 
book credit, that is, on a mere promise to pay. All these purchases 
have exactly the same effect on price, as if they were made with 
ready money. The amount of purchasing power which a person can 
exercise is composed of all the money in his possession or due to him, 
and of all his credit. For exercising the whole of this power he finds 
a sufficient motive only under pecuHar circumstances ; but he 
always possesses it ; and the portion of it which he at any time 
does exercise, is the measure of the effect which he produces on 
price. 

Suppose that, in the expectation that some commodity will rise 
in price, he determines, not only to invest in it all his ready money, 
but to take up on credit, from the producers or importers, as much 
of it as their opinion of his resources will enable him to obtain. 
Every one must see that by thus acting he produces a greater effect 
on price, than if he Hmited his purchases to the money he has actually 
in hand. He creates a demand for the article to the full amount of 
his money and credit taken together, and raises the price propor- 
tionally to both. And this effect is produced, though none of the 
written instruments called substitutes for currency may be called into 
existence ; though the transaction may give rise to no bill of ex- 
change, nor to the issue of a single bank note. The buyer, instead 
of taking a mere book credit, might have given a bill for the amount ; 
or might have paid for the goods with bank notes borrowed for that 
purpose from a banker, thus making the purchase not on his own 
credit with the seller, but on the banker's credit with the seller, 
and his own with the banker. Had he done so, he would have 
produced as great an effect on price as by a simple purchase to the 
same amount on a book credit, but no greater effect. The credit 
itself, not the form and mode in which it is given, is the operating 
cause. 

§ 3. The inclination of the mercantile public to increase their 
demand for commodities by making use of all or much of their credit 



526 BOOK III. CHAPTER XII. § 3 

as a purchasing power, depends on their expectation of profit^ 
When there is a general impression that the price of some commodity 
is likely to rise, from an extra demand, a short crop, obstruction to 
importation, or any other cause, there is a disposition among dealers 
to increase their stocks, in order to profit by the expected rise. 
This disposition tends in itself to produce the effect which it looks 
forward to, a rise of price : and if the rise is considerable and pro- 
gressive, other speculators are attracted, who, so long as the price 
has not begun to fall, are wilHng to believe that it will continue 
rising. These, by further purchases, produce a further advance : 
and thus a rise of price for which there were originally some rational 
grounds, is often heightened by merely speculative purchases, until 
it greatly exceeds what the original grounds will justify. After a 
time this begins to be perceived ; the price ceases to rise, and the 
holders, thinking it time to realize their gains, are anxious to sell. 
Then the price begins to decline : the holders rush into the market 
to avoid a still greater loss, and, few being wilHng to buy in a falling 
market, the price falls much more suddenly than it rose. Those 
who have bought at a higher price than reasonable calculation justi- 
fied, and who have been overtaken by the revulsion before they had 
realized, are losers in proportion to the greatness of the fall, and to 
the quantity of the commodity which they hold, or have bound them- 
selves to pay for. 

Now all these effects might take place in a community to which 
credit was unknown : the prices of some commodities might rise 
from speculation, to an extravagant height, and then fall rapidly 
back. But if there were no such thing as credit, this could hardly 
happen with respect to commodities generally. If all purchases 
were made with ready money, the payment of increased prices for 
some articles would draw an unusual proportion of the money of the 
community into the markets for those articles, and must therefore 
draw it away from some other class of commodities, and thus lower 
their prices. The vacuum might, it is true, be partly filled up by 
increased rapidity of circulation ; and in this manner the money of 
the community is virtually increased in a time of speculative activity, 
because people keep Httle of it by them, but hasten to lay it out in 
some tempting adventure as soon as possible after they receive it. 
This resource, however, is limited : on the whole, people cannot, 
while the quantity of money remains the same, lay out much more of 
it in some things, without laying out less in others. But what they 
cannot do by ready money, they can do by an extension of credit. 



INFLUENCE OF CREDIT ON PRICES 527 

Wlien people go into the market and purchase with money which 
they hope to receive hereafter, they are drawing upon an unHmited, 
not a limited fund. Speculation, thus supported, may be going on in 
any number of commodities, without disturbing the regular course 
of business in others. It might even be going on in all commodities 
at once. We could imagine that in an epidemic fit of the passion of 
gambhng, aU dealers, instead of giving only their accustomed orders 
to the manufacturers or growers of their commodity, commenced 
buying up all of it which they could procure, as far as their capital 
and credit would go. All prices would rise enormously, even if there 
were no increase of money, and no paper credit, but a mere extension 
of purchases on book credits. After a time those who had bought 
would wish to sell, and prices would collapse. 

This is the ideal extreme case of what is called a commercial 
crisis. There is said to be a commercial crisis, when a great number 
of merchants and traders at once, either have, or apprehend that they 
shall have, a difficulty in meeting their engagements. The most 
usual cause of this general embarrassment is the recoil of prices after 
they have been raised by a spirit of speculation, intense in degree, 
and extending to many commodities. Some accident which excites 
expectations of rising prices, such as the opening of a new foreign 
market, or simultaneous indications of a short supply of several 
great articles of commerce, sets speculation at work in several 
leading departments at once. The prices rise, and the holders 
reahze, or appear to have the power of reahzing, great gains. In 
certain states of the pubHc mind, such examples of rapid increase of 
fortune call forth numerous imitators, and speculation not only goes 
much beyond what is justified by the original grounds for expecting 
rise of price, but extends itself to articles in which there never was 
any such ground : these, however, rise Hke the rest as soon as specu- 
lation sets in. At periods of this kind a great extension of credit 
takes place. Not only do all whom the contagion reaches employ 
their credit much more freely than usual ; but they really have more 
credit, because they seem to be making unusual gains, and because 
a generally reckless and adventurous feehng prevails, which dis- 
poses people to give as weU as take credit more largely than at other 
times, and give it to persons not entitled to it. In this manner, in 
the celebrated speculative year 1825, and at various other periods 
during the present century, the prices of many of the principal 
articles of commerce rose greatly, without any fall in others, so that 
general prices might, without incorrectness, be said to have lisen. 



528 BOOK III. CHAPTER XII. § 3 

When, after such a rise, the reaction comes, and prices begin to fall, 
though at first perhaps only through the desire of the holders to 
realize, speculative purchases cease : but were this all, prices would 
only fall to the level from which they rose, or to that which is 
justified by the state of the consumption and of the supply. 
They fall, however, much lower ; for as, when prices were rising, 
and everybody apparently making a fortune, it was easy to obtain 
almost any amount of credit, so now, when everybody seems to be 
losing, and many fail entirely, it is with difficulty that firms of 
known solidity can obtain even the credit to which they are 
accustomed, and which it is the greatest inconvenience to them 
to be without ; because all dealers have engagements to fulfil, and 
nobody feeling sure that the portion of his means which he has 
entrusted to others will be available in time, no one likes to part with 
ready money, or to postpone his claim to it. To these rational 
I considerations there is superadded, in extreme cases, a panic as 
; unreasoning as the previous over-confidence ; money is borrowed 
for short periods at almost any rate of interest, and sales of goods 
[for immediate payment are made at almost any sacrifice. Thus 
general prices, during a commercial revulsion, fall as much below 
the usual level as during the previous period of speculation they have 
f risen above it : the fall, as well as the rise, originating not in any- 
I thing affecting money, but in the state of credit ; an unusually 
extended employment of credit during the earher period, followed by 
a great diminution, never amounting, however, to an entire cessation 
of it, in the later. 

It is not, however, universally true that the contraction of credit, 
characteristic of a commercial crisis, must have been preceded by 
an extraordinary and irrational extension of it. There are other 
causes ; and one of the more recent crises, that of 1847, is an instance, 
having been preceded by no particular extension of credit, and by 
no speculations ; except those in railway shares, which, though in 
many cases extravagant enough, yet being carried on mostly with 
that portion of means which the speculators could afford to lose, 
were not calculated to produce the wide-spread ruin which arises 
from vicissitudes of price in the commodities in which men habitually 
deal, and in which the bulk of their capital is invested. The crisis 
of 1847 belonged to another class of mercantile phenomena. There 
\ occasionally happens a concurrence of circumstances tending to 
withdraw from the loan market a considerable portion of the capital 
which usually supplies it. These circumstances, in the present case, 



INFLUENCE OF CREDIT ON PRICES 629 

were great foreign payments, (occasioned by a higli price of cotton 
and an unprecedented importation of food,) together with the con- 
tinual demands on the circulating capital of the country by railway 
calls and the loan transactions of railway companies, for the purpose 
of being converted into fixed capital and made unavailable for 
future lending. These various demands fell principally, as such 
demands always do, on the loan market. A great, though not the 
greatest, part of the imported food was actually paid for by the pro- 
ceeds of a government loan. The extra payments which purchasers 
of corn and cotton, and railway shareholders, found themselves 
obHged to make, were either made with their own spare cash, or with 
money raised for the occasion. On the first supposition, they were 
made by withdrawing deposits from bankers, and thus cutting off 
a part of the streams which fed the loan market; on the second 
supposition, they were made by actual drafts on the loan market, 
either by the sale of securities, or by taking up money at interest. 
This combination of a fresh demand for loans, with a curtailment of 
the capital disposable for them, raised the rate of interest, and made 
it impossible to borrow except on the very best security. Some 
firms, therefore, which by an improvident and unmercantile mode 
of conducting business had allowed their capital to become either 
temporarily or permanently unavailable, became unable to command 
that perpetual renewal of credit which had previously enabled them 
to struggle on. These firms stopped payment : their failure involved 
more or less deeply many other firms which had trusted them ; 
and, as usual in such cases, the general distrust, commonly called 
a panic, began to set in, and might have produced a destruction of 
credit equal to that of 1825, had not circumstances, which may almost 
be called accidental, given to a very simple measure of the govern- 
ment (the suspension of the Bank Charter Act of 1844) a fortunate 
power of allaying panicj to which, when considered in itself, it had 
no sort of claim.* 

§ 4. The general operation of credit upon prices being such as 
we have described, it is evident that if any particular mode or form 
of credit is calculated to have a greater operation on prices than 

* [1865] The commercial difficulties, not however amounting to a com- 
mercial crisis, of 1864, had essentially the same origin. Heavy payments for 
cotton imported at high prices, and large investments in banking and other 
joint stock projects, combined with the loan operations of foreign governments, 
made such large drafts upon the loan market as to raise the rate of discount on 
mercantile bills as high as nine per cent. 



630 BOOK III. CHAPTER XII. § 4 

others, it can only be by giving greater facility, or greater encourage- 
ment, to the multiplication of credit transactions generally. If 
bank notes, for instance, or bills, have a greater effect on prices 
than book credits, it is not by any difference in the transactions 
themselves, which are essentially the same, whether taking place 
in the one way or in the other : it must be that there are likely to be 
more of them. If credit is likely to be more extensively used as a 
purchasing power when bank notes or bills are the instruments used, 
than when the credit is given by mere entries in an account, to that 
extent and no more there is ground for ascribing to the former 
a greater power over the markets than belongs to the latter. 

Now it appears that there is some such distinction. As far as 
respects the particular transactions, it makes no difference in the 
effect on price whether A buys goods of B on simple credit, or gives a 
bill for them, or pays for them with bank notes lent to him by a 
banker C. The diSerence is in a subsequent stage. If A has bought 
the goods on a book credit, there is no obvious or convenient mode 
by which B can make A's debt to him a means of extending his own 
credit. Whatever credit he has, will be due to the general opinion 
entertained of his solvency ; he cannot specifically pledge A's debt 
to a third person, as a security for money lent or goods bought. 
But if A has given him a bill for the amount, he can get this 
discounted, which is the same thing as borrowing money on the joint 
credit of A and himself : or he may pay away the bill in exchange 
for goods, which is obtaining goods on the same joint credit. In 
either case, here is a second credit transaction, grounded on the first, 
and which would not have taken place if the first had been transacted 
without the intervention of a bill. Nor need the transactions end 
here. The bill may be again discounted, or again paid away for 
goods, several times before it is itself presented for payment. Nor 
would it be correct to say that these successive holders, if they had 
not had the bill, might have attained their purpose by purchasing 
goods on their own credit with the dealers. They may not all of 
them be persons of credit, or they may already have stretched their 
credit as far as it will go. And at all events, either money or goods 
are more readily obtained on the credit of two persons than of one. 
Nobody will pretend that it is as easy a thing for a merchant to 
borrow a thousand pounds on his own credit, as to get a bill dis- 
counted to the same amount, when the drawee is of known solvency. 

If we now suppose that A, instead of giving a bill, obtains a 
loan of bank notes from a banker C, and with them pays B for hia 



INFLUENCE OF CREDIT ONPETCES J^^r 

goods, we shall find tlie difierence to be still greater. B is now 
independent even of a discounter : A's bill would have been taken 
in payment only by those who were acquainted with his reputation 
for solvency, but a banker is a person who has credit with the pubUc 
generally, and whose notes are taken in payment by every one, 
at least in his own neighbourhood : insomuch that, by a custom 
which has grown into law, payment in bank notes is a complete 
acquittance to the payer, whereas, if he has paid by a bill, he still 
remains hable to the debt, if the person on whom the bill is drawn 
fails to pay it when due. B therefore can expend the whole of the 
bank notes without at all involving his own credit ; and whatever 
power he had before of obtaining goods on book credit, remains to 
him unimpaired, in addition to the purchasing power he derives from 
the possession of the notes. The same remark appHes to every 
person in succession, into whose hands the notes may come. It is 
only A, the first holder, (who used his credit to obtain the notes 
as a loan from the issuer,) who can possibly find the credit he possesses 
in other quarters abated by it ; and even in his case that result is 
not probable ; for though, in reason, and if all his circumstances 
were known, every draft already made upon his credit ought to 
diminish by so much his power of obtaining more, yet in practice 
the reverse more frequently happens, and his having been trusted 
by one person is supposed to be evidence that he may safely be 
trusted bv others also. 

It appears, therefore, that bank notes are a more powerful 
instrument for raising prices than bills, and bills than book credits. 
It does not, indeed, follow that credit will be more used because it 
can be. When the state of trade holds out no particular temptation 
to make large purchases on credit, dealers will use only a small 
portion of the credit power, and it will depend only on convenience 
whether the portion which they use will be taken in one form or 
in another. It is not until the circumstances of the markets, and the 
state of the mercantile mind, render many persons desirous of 
stretching their credit to an unusual extent, that the distinctive 
properties of the difierent forms of credit display themselves. Credit 
already stretched to the utmost in the form of book debts, would 
be susceptible of a great additional extension by means of bills, 
and of a still greater by means of bank notes. The first, because 
each dealer, in addition to his own credit, would be enabled to create 
a further purchasing power out of the credit which he had himself 
given to others : the second, because the banker's credit with the 



pubUc at large, coined into notes, as bullion is coined into pieces of 
money to make it portable and divisible, is so mucb purcbasing 
power superadded, in the bands of every successive bolder, to tbat 
wbicb be may derive from bis own credit. To state tbe matter 
otberwise ; one single exertion of tbe credit-power in tbe form of 
book credit is only tbe foundation of a single purcbase : but if a 
bill is drawn, tbat same portion of credit may serve for as many 
purcbases as tbe number of times tbe bill cbanges bands : wbile 
every bank note issued renders tbe credit of tbe banker a pur- 
cbasing power to tbat amount in tbe bands of all tbe successive 
bolders, witbout impairing any power tbey may possess of effecting 
purcbases on tbeir own credit. Credit, in sbort, bas exactly tbe 
same purcbasing power witb money ; and as money tells upon 
prices not simply in proportion to its amount, but to its amount 
multiplied by tbe number of times it cbanges bands, so also does 
credit ; and credit transferable from band to band is in tbat pro- 
portion more potent tban credit wbicb only performs one purcbase. 

§ 5. All tbis purcbasing power, bowever, is operative upon 
prices only according to tbe proportion of it wbicb is used ; and 
tbe effect, tberefore, is only felt in a state of circumstances calcu- 
lated to lead to an unusually extended use of credit. In sucb a state 
of circumstances, tbat is, in speculative times, it cannot, I tbink, be 
denied, tbat prices are bkely to rise bigber if tbe speculative pur- 
cbases are made witb bank notes, tban wben tbey are made witb bills, 
and wben made by bills tban wben made by book credits. Tbis, 
bowever, is of far less practical importance tban migbt at first be 
imagined ; because, in point of fact, speculative purcbases are not, 
in tbe great majority of cases, made eitber witb bank notes or witb 
bills, but are made almost exclusively on book credits. " Appbca- 
tions to tbe Bank for extended discount," says tbe bigbest autbority 
on sucb subjects,* (and tbe same tbing must be true of appHcations 
to otber banks) " occur rarely if ever in tbe origin or progress of 
extensive speculations in commodities. Tbese are entered into, for 
tbe most part if not entirely, in tbe first instance, on credit, for tbe 
lengtb of term usual in tbe several trades ; tbus entaibng on tbe 
parties no immediate necessity for borrowing so mucb as may be 
wanted for tbe purpose beyond tbeir own available capital. Tbis 
applies particularly to speculative purcbases of commodities on tbe 
spot, witb a view to resale. But tbese generally form tbe smaller 
* Tooke, History of Prices, vol. iv. pp. 125-6, 



proportion of engagements on credit. By far the largest of those 
entered into on the prospect of a rise of prices, are such as have in 
view importations from abroad. The same remark, too, is appHc- 
able to the export of comniodities, when a large proportion is on the 
credit of the shippers or their consignees. As long as circumstances 
hold out the prospect of a favourable result, the credit of the parties 
is generally sustained. If some of them wish to realize, there are 
others with capital and credit ready to replace them ; and if the 
events fully justify the grounds on which the speculative transactions 
were entered into (thus admitting of sales for consumption in time 
to replace the capital embarked) there is no unusual demand for 
borrowed capital to sustain them. It is only when by the vicissi- 
tudes of poHtical events, or of the seasons, or other adventitious 
circumstances, the forthcoming suppUes are found to exceed the 
computed rate of consumption, and a fall of prices ensues, that an 
increased demand for capital takes place ; the market rate of 
interest then rises, and increased apphcations are made to the Bank 
of England for discount." So that the multiplication of bank notes 
and other transferable paper does not, for the most part, accompany 
and faciUtate the speculation ; but comes into play chiefly when the 
tide is turning, and difficulties begin to be felt. 

Of the extraordinary height to which specidative transactions 
can be carried upon mere book credits, without the smallest addition 
to what is commonly called the currency, very few persons are at 
all aware. " The power of purchase," says Mr. Tooke,* " by persons 
having capital and credit, is much beyond anything that those who 
are unacquainted practically with speculative markets have any 
idea of. ... A person having the reputation of capital enough for 
his regular business, and enjoying good credit in his trade, if he 
takes a sanguine view of the prospect of a rise of price of the article 
in which he deals, and is favoured by circumstances in the outset 
and progress of his speculation, may effect purchases to an extent 
perfectly enormous, compared with his capital." Mr. Tooke con- 
firms this statement by some remarkable instances, exemphfying 
the immense purchasing power which may be exercised, and rise of 
price which may be produced, by credit not represented by either 
bank notes or bills of exchange. 

" Amongst the earher speculators for an advance in the price of 
tea, in consequence of our dispute with China in 1839, were several 

* Inquiry into the Currency Principle, pp. 79 and 136-8, 



m BOOK III. CHAPTER XII. § 5 

retail grocers and tea-dealers. There was a general disposition 
among the trade to get in stock : that is, to lay in at once a quantity 
which would meet the probable demand from their customers for 
several months to come. Some, however, among them, more 
sanguine and adventurous than the rest, availed themselves of their 
credit with the importers and wholesale dealers, for purchasing 
quantities much beyond the estimated demand in their own business. 
As the purchases were made in the first instance ostensibly, and 
perhaps really, for the legitimate purposes and within the limits of 
their regular business, the parties were enabled to buy without the 
condition of any deposit ; whereas speculators, known to be such, 
are required to pay 21. per chest, to cover any probable difference of 
price which might arise before the expiration of the prompt, which, 
for this article, is three months. Without, therefore, the outlay of 
a single farthing of actual capital or currency in any shape, they 
made purchases to a considerable extent ; and with the profit 
realized on the resale of a part of these purchases, they were enabled 
to pay the deposit on further quantities when required, as was the 
case when the extent of the purchases attracted attention. In this 
way, the speculation went on at advancing prices (100 per cent and 
upwards) till nearly the expiration of the prompt ; and if at that time 
circumstances had been such as to justify the apprehension which 
at one time prevailed, that all future supplies would be cut off, the 
prices might have still further advanced, and at any rate not have 
retrograded. In this case, the speculators might have realized, if not 
all the profit they had anticipated, a very handsome sum, upon which 
they might have been enabled to extend their business greatly, or to 
retire from it altogether, with a reputation for great sagacity in thus 
making their fortune. But instead of this favourable result, it so 
happened that two or three cargoes of tea which had been tran- 
shipped were admitted, contrary to expectation, to entry on their 
arrival here, and it was found that further indirect shipments were 
in progress. Thus the supply was increased beyond the calculation 
of the speculators : and, at the same time, the consumption had 
been diminished by the high price. There was, consequently, a 
violent reaction on the market ; the speculators were unable to sell 
without such a sacrifice as disabled them from fulfilling their engage- 
ments, and several of them consequently failed. Among these, one 
was mentioned, who having a capital not exceeding 1200Z. which 
was locked up in his business, had contrived to buy 4000 chests, 
value above 80,000L, the loss upon which was about 16j000i. 



INFLUENCE OF CREDIT ON PRrCE& " o^o 

** The other example which I have to give, is that of the operation 
on the corn market between 1838 and 1842. There was an instance 
of a person who, when he entered on his extensive speculations, 
was, as it appeared by the subsequent examination of his affairs, 
possessed of a capital not exceeding 50001., but being successful 
in the outset, and favoured by circumstances in the progress of 
his operations, he contrived to make purchases to such an extent, 
that when he stopped payment his engagements were found to 
amount to between 500,000/. and 600,000?. Other instances might 
be cited of parties without any capital at all, who, by dint of mere 
credit, were enabled, while the aspect of the market favoured their 
views, to make purchases to a very great extent. 

" And be it observed, that these speculations, involving enormous 
purchases on little or no capital, were carried on in 1839 and 1840, 
when the money market was in its most contracted state ; or when, 
according to modern phraseology, there was the greatest scarcity 
of money." 

But though the great instrument of speculative purchases is 
book credits, it cannot be contested that in speculative periods 
an increase does take place in the quantity both of bills of exchange 
and of bank notes. This increase, indeed, so far as bank notes 
are concerned, hardly ever takes place in the earliest stage of the 
speculations : advances from bankers (as Mr. Tooke observes) not 
being apphed for in order to purchase, but in order to hold on 
without selling when the usual term of credit has expired, and the 
high price which was calculated on has not arrived. But the tea 
speculators mentioned by Mr. Tooke could not have carried their 
speculations beyond the three months which are the usual term 
of credit in their trade, unless they had been able to obtain advances 
from bankers, which, if the expectation of a rise of price had still 
continued, they probably could have done. 

Since, then, credit in the form of bank notes is a more potent 
instrument for raising prices than book credits, an unrestrained 
power of resorting to this instrument may contribute to prolong 
and heighten the speculative rise of prices, and hence to aggravate 
the subsequent recoil. But in what degree ? and what importance 
ought we to ascribe to this possibiUty ? It may help us to form 
some judgment on this point, if we consider the proportion which 
the utmost increase of bank notes in a period of speculation, bears, 
I do not say to the whole mass of credit in the country, but to 
the bills of exchange alone. The average amount of bills in existence 



^^^^ 



536 



BOOK III. CHAPTER XII. § 6 



at any one time is supposed greatly to exceed [1848] a hundred 
millions sterling.* The bank note circulation of Great Britain and 
Ireland seldom exceeds forty millions, and the increase in speculative 
periods at most two or three. And even this, as we have seen, 
hardly ever comes into play until that advanced period of the 
speculation at which the tide shows signs of turning, and the dealers 
generally are rather thinking of the means of fulfilling their existing 
engagements, than meditating an extension of them : while the 
quantity of bills in existence is largely increased from the very 
commencement of the speculations. 

§ 6. It is well known that, of late years, an artificial limitation 
of the issue of bank notes has been regarded by many political 
economists, and by a great portion of the public, as an expedient 
of supreme efficacy for preventing, and when it cannot prevent, 
for moderating, the fever of speculation ; and this opinion received 
the recognition and sanction of the legislature by the Currency 
Act of 1844. At the point, however, which our inquiries have 
reached, though we have conceded to bank notes a greater power 
over prices than is possessed by bills or book credits, we have not 



* The most approved estimate is that of Mr. Leatham, grounded on the 
official returns of bill stamps issued. The following are the results : — 



Year. 


Bills created in Great Britain 

and Ireland, founded on 

returns of Bill Stamps 

issued from the Stamp Office. 


Average amount in 

circulation at one time in 

each year. 


1832 
1833 
1834 
1835 
1836 
1837 
1838 
1839 


£356,153,409 
383,659,585 
379,155,052 
405,403,051 
485,943,473 
455,084,445 
465,504,041 
528,493,842 


£89,038,352 
95,914,896 
94,788,763 
101,350,762 
121,485,868 
113,771,111 
116,376,010 
132,123,460 



" Mr. Leatham," says Mr. Tooke, *' gives the process by which, upon the 
data furnished by the returns of stamps, he arrives at these results ; and I am 
disposed to think that they are as near an approximation to the truth as the 
nature of the materials admits of arriving at." — Inquiry into the Currency 
Principle, p. 26. — [1862] Mr. Newmarch (Appendix No. 39 to Beport of the 
Committee on the Bank Acts in 1857, and History of Prices, vol. vi. p. 587) shows 
grounds for the opinion that the total bill circulation in 1857 was not much 
less than 180 millions sterling and that it sometimes rises to 200 millions. 



INFLUENCE OF CREDIT ON PRICES 537 

found reason to tliink that this superior efficacy has much share in 
producing the rise of prices which accompanies a period of specula- 
tion, nor consequently that any restraint applied to this one instru- 
ment can be efficacious to the degree which is often supposed, in 
moderating either that rise, or the recoil which follows it. We 
shall be still less inclined to think so, when we consider that there 
is a fourth form of credit transactions, by cheques on bankers, 
and transfers in a banker's books, which is exactly parallel in every 
respect to bank notes, giving equal facilities to an extension of credit, 
and capable of acting on. prices quite as powerfully. In the words 
of Mr. Fullarton,* " there is not a single object at present attained 
through the agency of Bank of England notes, which might not be 
as effectually accompUshed by each individual keeping an account 
with the bank, and transacting all his payments of five pounds 
and upwards by cheque." A bank, instead of lending its notes to 
a merchant or dealer, might open an account with him, and credit 
the account with the sum it had agreed to advance : on an under- 
standing that he should not draw out that sum in any other mode 
than by drawing cheques against it in favour of those to whom 
he had occasion to make payments. These cheques might possibly 
even pass from hand to hand like bank notes ; more commonly, 
however, the receiver would pay them into the hands of his own 
banker, and when he wanted the money, would draw a fresh cheque 
against it : and hence an objector may urge that as the original 
cheque would very soon be presented for payment, when it must 
be paid either in notes or in coin, notes or coin to an equal amount 
must be provided as the ultimate means of liquidation. It is not 
so, however. The person to whom the cheque is transferred may 
perhaps deal with the same banker, and the cheque may return 
to the very bank on which it was drawn : this is very often the case 
in country districts ; if so, no payment will be called for, but a 
simple transfer in the banker's books will settle the transaction. 
If the cheque is paid into a different bank, it will not be presented 
for payment, but liquidated by set-off against other cheques ; and 
in a state of circumstances favourable to a general extension of 
banking credits, a banker who has granted more credit, and has 
therefore more cheques drawn on him, will also have more cheques 
on other bankers paid to him, and will only have to provide notes 
or cash for the payment of balances ; for which purpose the ordinary 

* On the Regulation of Currencies, p. 41. 



538 - BOOK III. CHAPTER XII. § 7 

reserve of prudent bankers, one-tliird of tlieir liabilities, will abund- 
antly suffice. Now, if he had granted the extension of credit by 
means of an issue of his own notes, he must equally have retained, 
in coin or Bank of England notes, the usual reserve : so that he 
can, as Mr. Fullarton says, give every facility of credit by what 
may be termed a cheque circulation, which he could give by a note 
circulation. 

This extension of credit by entries in a banker's books, has all 
that superior efficiency in acting on prices, which we ascribed to 
an extension by means of bank notes. As a bank note of 201., 
paid to any one, gives him 201. of purchasing power based on credit, 
over and above whatever credit he had of his own, so does a cheque 
paid to him do the same : for, although he may make no purchase 
with the cheque itself, he deposits it with his banker, and can draw 
against it. As this act of drawing a cheque against another which 
has been exchanged and cancelled, can be repeated as often as a 
purchase with a bank note, it effects the same increase of purchasing 
power. The original loan, or credit, given by the banker to his 
customer, is potentially multiplied as a means of purchase, in the 
hands of the successive persons to whom portions of the credit are 
paid away, just as the purchasing power of a bank note is multiplied 
by the number of persons through whose hands it passes before it 
is returned to the issuer. 

These considerations abate very much from the importance of 
any effect which can be produced in allaying the vicissitudes of 
commerce, by so superficial a contrivance as the one so much relied 
on of late, the restriction of the issue of bank notes by an artificial 
rule. An examination of all the consequences of that restriction, 
and an estimate of the reasons for and against it, must be deferred 
until we have treated of the foreign exchanges, and the international 
movements of bulhon. At present we are only concerned with 
the general theory of prices, of which the different influence of 
different kinds of credit is an essential part. 

§ 7.^ There has been a great amount of discussion and argument 
on the question whether several of these forms of credit, and in 
particular whether bank notes, ought to be considered as money. 
The question is so purely verbal as to be scarcely worth raising, 
and one would have some difficulty in comprehending why so much 

* [This section was added in the 4th ed. (1857).] 



INFLUENCE OF CREDIT ON PRICES 539 

importance is attached to it, if there were not some authorities 
who, still adhering to the doctrine of the infancy of society and of 
pohtical economy, that the quantity of money compared with that 
of commodities, determines general prices, think it important to 
prove that bank notes and no other forms of credit are money, in 
order to support the inference that bank notes and no other forms 
of credit influence prices. It is obvious, however, that prices do 
not depend on money, but on purchases. Money left with a banker, 
and not drawn against, or drawn against for other purposes than 
buying commodities, has no effect on prices, any more than credit 
which is not used. Credit which is used to purchase commodities 
affects prices in the same manner as money. Money and credit are 
thus exactly on a par, in their effect on prices ; and whether we 
choose to class bank notes with the one or the other, is in this respect 
entirely immaterial. 

Since, however, this question of nomenclature has been raised, 
it seems desirable that it should be answered. The reason given 
for considering bank notes as money, is, that by law and usage 
they have the property, in common with metallic money, of finally 
closing the transactions in which they are employed ; while no 
other' mode of papng one debt by transferring another has that 
privilege. The first remark which here suggests itself is, that on 
this showing, the notes at least of private banks are not money ; 
for a creditor cannot be forced to accept them in payment of a 
debt. They certainly close the transaction if he does accept them ; 
but so, on the same supposition, would a bale of cloth, or a pipe 
of wine ; which are not for that reason regarded as money. It 
seems to be an essential part of the idea of money that it be legal 
tender. An inconvertible paper which is legal tender is universally 
admitted to be money ; in the French language the phrase papier- 
monnaie actually means inconvertibihty, convertible notes being 
merely hillets a forteur. It is only in the case of Bank of England 
notes under the law of convertibiHty, that any difficulty arises ; 
those notes not being a legal tender from the Bank itself, though 
a legal tender from all other persons. Bank of England notes 
undoubtedly do close transactions, so far as respects the buyer. 
When he has once paid in Bank of England notes, he can in no case 
be required to pay over again. But I confess I cannot see how 
the transaction can be deemed complete, as regards the seller, when 
he will only be found to have received the price of his commodity 
provided the Bank keeps its promise to pay. An instrument which 



540 BOOK III. CHAPTER KII. § 8 

would be deprived of all value by the insolvency of a corporation, 
cannot be money in any sense in wHcli money is opposed to credit. 
It either is not money, or it is money and credit too. It may be 
most suitably described as coined credit. The other forms of credit 
may be distinguished from it as credit in ingots. 

§ 8. Some high authorities have claimed for bank notes, as 
compared with other modes of credit, a greater distinction in respect 
to influence on price, than we have seen reason to allow ; a difference, 
not in degree, but in kind. They ground this distinction on the 
fact that all bills and cheques, as well as aU book-debts, are from 
the first intended to be, and actually are, ultimately Hquidated 
either in coin or in notes. The bank notes in circulation, jointly 
with the coin, are therefore, according to these authorities, the 
basis on which all the other expedients of credit rest ; and in pro- 
portion to the basis will be the superstructure ; insomuch that the 
quantity of bank notes determines that of all the other forms of 
credit. If bank notes are multiplied, there will, they seem to think, 
be more bills, more payments by cheque, and, I presume, more 
book credits ; and by regulating and limiting the issue of bank 
notes, they think that all other forms of credit are, by an indirect 
consequence, brought under a similar limitation. I believe I have 
stated the opinion of these authorities correctly, though I have 
nowhere seen the grounds of it set forth with such distinctness 
as to make me feel quite certain that I understand them. It may 
be true that, according as there are more or fewer bank notes, 
there is also in general (though not invariably), more or less of 
other descriptions of credit ; for the same state of affairs which 
leads to an increase of credit in one shape, leads to an increase of 
it in other shapes. But I see no reason for beheving that the one 
is the cause of the other.^ If indeed we begin by assuming, as I 
suspect is tacitly done, that prices are regulated by coin and bank 
notes, the proposition maintained will certainly follow ; for, accord- 
ing as prices are higher or lower, the same purchases will give rise 
to bills, cheques, and book credits of a larger or a smaller amount. 
But the premise in this reasoning is the very proposition to be 
proved. Setting this assumption aside, I know not how the con- 
clusion can be substantiated. The credit given to any one by 

^ [This and the preceding sentence replaced in the 4th ed. (1857) the 
following sentence of the original text : " I can see no reason for the doctrine, 
that according as there are more or fewer bank notes, there will be more or 
less of other descriptions of credit."] 



INFLUENCE OF CREDIT ON PRICES 541 

those witli whom lie deals, does not depend on the quantity of bank 
notes or coin in circulation at the time, but on their opinion of his 
solvency : if any consideration of a more general character enters 
into their calculation, it is only in a time of pressure on the loan 
market, when they are not certain of being themselves able to obtain 
the credit on which they have been accustomed to rely ; and even 
then, what they look to is the general state of the loan market, 
and not (preconceived theory apart) the amount of bank notes. 
So far as to the willingness to give credit. And the wilHngness of 
a dealer to use his credit depends on his expectations of gain, that 
is, on his opinion of the probable future price of his commodity ; 
an opinion grounded either on the rise or fall already going on, or 
on his prospective judgment respecting the supply and the rate of 
consumption. When a dealer extends his purchases beyond his 
immediate means of payment, engaging to pay at a specified time, 
he does so in the expectation either that the transaction will have 
terminated favourably before that time arrives, or that he shall 
then be in possession of sufficient funds from the proceeds of his 
other transactions. The fulfilment of these expectations depends 
upon prices, but not especially upon the amount of bank notes. 
He may, doubtless, also ask himself, in case he should be disap- 
pointed in these expectations, to what quarter he can look for a 
temporary advance, to enable him, at the worst, to keep his engage- 
ments. But in the first place, this prospective reflection on the 
somewhat more or less of difficulty which he may have in tiding 
over his embarrassments, seems too slender an inducement to be 
much of a restraint in a period supposed to be one of rash adventure, 
and upon persons so confident of success as to involve themselves 
beyond their certain means of extrication. And further, I appre- 
hend that their confidence of being helped out in the event of ill- 
fortune^ will mainly depend on their opinion of their own individual 
credit, with, perhaps, some consideration, not of the quantity of 
the currency, but of the general state of the loan market. They 
are aware that, in case of a commercial crisis, they shall have 
difficulty in obtaining advances. But if they thought it likely that 
a commercial crisis would occur before they had realized, they 
would not speculate. If no great contraction of general credit 
occurs, they will feel no doubt of obtaining any advances which 
they absolutely require, provided the state of their own afiairs at 
the time affords in the estimation of lenders a. sufficient prospect 
that those advances will be repaid. 




CHAPTER XIII 

OF AN INCONVERTIBLE PAPER CURRENCY 

§ 1. After experience had shown that pieces of paper, of no 
intrinsic value, by merely bearing upon them the written profession 
of being equivalent to a certain number of francs, dollars, or pounds, 
could be made to circulate as such, and to produce all the benefit to 
the issuers which could have been produced by the coins which they 
purported to represent ; governments began to think that it would 
be a happy device if they could appropriate to themselves this 
benefit, free from the condition to which individuals issuing such 
paper substitutes for money were subject, of giving, when required, 
for the sign, the thing signified. They determined to try whether they 
could not emancipate themselves from this unpleasant obhgation, 
and make a piece of paper issued by them pass for a pound, by merely 
calUng it a pound, and consenting to receive it in payment of the 
taxes. And such is the influence of almost all established govern- 
ments, that they have generally succeeded in attaining this object : 
I believe I might say they have always succeeded for a time, and 
the power has only been lost to them after they had compromised it 
by the most flagrant abuse. 

In the case supposed, the functions of money are performed by a 
thing which derives its power for performing them solely from con- 
vention ; but convention is quite sufficient to confer the power ; 
since nothing more is needful to make a person accept anything as 
money, and even at any arbitrary value, than the persuasion that 
it will be taken from him on the same terms by others. The only 
question is, what determines the value of such a currency ; since it 
cannot be, as in the case of gold and silver (or paper exchangeable 
for them at pleasure), the cost of production. 

We have seen, however, that even in the case of a metallic 
currency, the immediate agency in determining its value is its 
quantity. If the quantity, instead of depending on the ordinary 



INCONVERTIBLE PAPER CURRENCY 543 

mercantile motives of profit and loss, could be arbitrarily fixed by 
authority, tbe value would depend on tbe fiat of that authority, not 
on cost of production. The quantity of a paper currency not con- 
vertible into the metals at the option of the holder, can be arbi- 
trarily fixed ; especially if the issuer is the sovereign power of the 
state. The value, therefore, of such a currency is entirely arbitrary 
SuDpose that, in a country of which the currency is wholly 
metallic, a paper currency is suddenly issued, to the amount of half 
the metallic circulation ; not by a banking estabhshment, or in the 
form of loans, but by the government, in payment of salaries and 
purchase of commodities. The currency being suddenly increased 
by one-half, all prices will rise, and among the rest, the prices of all 
things made of gold and silver. An ounce of manufactured gold 
will become more valuable than an ounce of gold coin, by more than 
that customary difference which compensates for the value of the 
workmanship ; and it will be profitable to melt the coin for the 
purpose of being manufactured, until as much has been taken from 
the currency by the subtraction of gold, as had been added to it by 
the issue of paper. Then prices will relapse to what they were at 
first, and there will be nothing changed except that a paper currency 
has been substituted for half of the metalHc currency which existed 
before. Suppose, now, a second emission of paper ; the same series 
of effects will be renewed ; and so on, until the whole of the metalUc 
money has disappeared : that is, if paper be issued of as low a 
denomination as the lowest coin ; if not, as much will remain as 
convenience requires for the smaller payments. The addition made 
to the quantity of gold and silver disposable for ornamental pur- 
poses, will somewhat reduce, for a time, the value of the article ; 
and as long as this is the case, even though paper has been issued to 
the original amount of the metalhc circulation, as much coin will 
remain in circulation along with it, as will keep the value of the 
currency down to the reduced value of the metallic material ; but 
the value having fallen below the cost of production, a stoppage or 
diminution of the supply from the mines will enable the surplus to 
be carried off by the ordinary agents of destruction, after which, 
the metals and the currency will recover their natural value. We 
are here supposing, as we have supposed throughout, that the 
country has mines of its own, and no commercial intercourse with 
other countries ; for, in a country having foreign trade, the coin 
which is rendered superfluous by an issue of paper is carried off by a 
much prompter method. 



544 BOOK III. CHAPTER XIII. § 2 

Up to this point, the effects of a paper currency are substantially 
the same, whether it is convertible into specie or not. It is when 
the metals have been completely superseded and driven from circu- 
lation, that the difference between convertible and inconvertible 
paper begins to be operative. When the gold or silver has all gone 
from circulation, and an equal quantity of paper has taken its place, 
suppose that a still further issue is superadded. The same series of 
phenomena recommences : prices rise, among the rest the prices of 
gold and silver articles, and it becomes an object as before to procure 
coin in order to convert it into bullion. There is no longer any coin 
in circulation ; but if the paper currency is convertible, coin may 
still be obtained from the issuers, in exchange for notes. All addi- 
tional notes, therefore, which are attempted to be forced into circu- 
lation after the metals have been completely superseded, will return 
upon the issuers in exchange for coin ; and they will not be able to 
maintain in circulation such a quantity of convertible paper as to 
sink its value below the metal which it represents. It is not so, 
however, with an inconvertible currency. To the increase of that 
(if permitted by law) there is no check. The issuers may add to it 
indefinitely, lowering its value and raising prices in proportion ; 
they may, in other words, depreciate the currency without limit. 

Such a power, in whomsoever vested, is an intolerable evil. All 
variations in the value of the circulating medium are mischievous : 
they disturb existing contracts and expectations, and the liability 
to such changes renders every pecuniary engagement of long date 
entirely precarious. The person who buys for himself, or gives to 
another, an annuity of 100?., does not know whether it will be 
equivalent to 2001. or to 501. a few years hence. Great as this evi- 
would be if it depended only on accident, it is still greater when 
placed at the arbitrary disposal of an individual or a body of indivi- 
duals ; who may have any kind or degree of interest to be served by 
an artificial fluctuation in fortunes ; and who have at any rate a 
strong interest in issuing as much as possible, each issue being in 
itself a source of profit. Not to add, that the issuers may have, and 
in the case of a government paper, always have, a direct interest in 
lowering the value of the currency, because it is the medium in 
which their own debts are computed. 

§ 2. In order that the value of the currency may be secure 
from being altered by design, and may be as little as possible Hable 
to fluctuation from accidentj the articles least liable of all known 



INCONVERTIBLE PAPER CURRENCY 646 

commodities to vary in their value, the precious metals, have been 
made in all civilized countries the standard of value for the circu- 
lating medium ; and no paper currency ought to exist of which the 
value cannot be made to conform to theirs. Nor has this fundamental 
maxim ever been entirely lost sight of, even by the governments 
which have most abused the power of creating inconvertible paper. 
If they have not (as they generally have) professed an intention of 
paying in specie at some indefinite future time, they have at least, 
by giving to their paper issues the names of their coins, made a 
virtual, though generally a false, profession of intending to keep 
them at a value corresponding to that of the coins. This is not 
impracticable, even with an inconvertible paper. There is not 
indeed the self-acting check which convertibiHty brings with it. 
But there is a clear and unequivocal indication by which to judge 
whether the currency is depreciated, and to what extent. That 
indication is, the price of the precious metals. When holders of 
paper cannot demand coin to be converted into bullion, and when 
there is none left in circulation, bulHon rises and falls in price like 
other things ; and if it is above the Mint price, if an ounce of gold, 
which would be coined into the equivalent of 31. 17s. lO^d.j is sold 
for 4:1. or bl. in paper, the value of the currency has just sunk that 
much below what the value of a metalHc currency would be. If, 
therefore, the issue of inconvertible paper were subjected to strict 
rules, one rule being that whenever bulHon rose above the Mint price, 
the issues should be contracted until the market price of buUion and 
the Mint price were again in accordance, such a currency would 
not be subject to any of the evils usually deemed inherent in an 
inconvertible paper. 

But also such a system of currency would have no advantages 
sufficient to recommend it to adoption. An inconvertible currency, 
regulated by the price of buUion, would conform exactly, in all its 
variations, to a convertible one ; and the only advantage gained 
would be that of exemption from the necessity of keeping any reserve 
of the precious metals ; which is not a very important consideration, 
especially as a government, so long as its good faith is not suspected, 
needs not keep so large a reserve as private issuers, being not so 
liable ,to great and sudden demands, since there never can be any 
real doubt of its solvency. Against this small advantage is to be set, 
in the first place, the possibiHty of fraudulent tampering with the 
price of bullion for the sake of acting on the currency ; in the 
Dianner of the fictitious sales of corn, to influence the averages, so 



546 BOOK III. CHAPTER XIIL § 3 

mucli and so justly complained of while the corn laWs were in force. 
But a still stronger consideration is the importance of adhering to a 
simple principle, intelligible to the most untaught capacity. Every- 
body can understand convertibility ; every one sees that what can 
be at any moment exchanged for five pounds is worth five pounds. 
Regulation by the price of bullion is a more complex idea, and does 
not recommend itself through the same familiar associations. There 
would be nothing like the same confidence, by the pubHc generally, 
in an inconvertible currency so regulated, as in a convertible one : 
and the most instructed person might reasonably doubt whether 
such a rule would be as likely to be inflexibly adhered to. The 
grounds of the rule not being so well understood by the pubUc, 
opinion would probably not enforce it with as much rigidity, and, in 
any circumstances of difficulty, would be hkely to turn against it ; 
while to the government itself a suspension of convertibility would 
appear a much stronger and more extreme measure, than a relaxa- 
tion of what might possibly be considered a somewhat artificial rule. 
There is therefore a great preponderance of reasons in favour of a 
convertible, in preference to even the best regulated inconvertible 
currency. The temptation to over-issue, in certain financial 
emergencies, is so strong, that nothing is admissible which can tend, 
in however slight a degree, to weaken the barriers that restrain it. 

§ 3. Although no doctrine in poHtical economy rests on more 
obvious grounds than the mischief of a paper currency not main- 
tained at the same value with a metallic, either by convertibility, 
or by some principle of limitation equivalent to it ; and although, 
accordingly, this doctrine has, though not till after the discussions 
of many years, been tolerably effectually drummed into the public 
mind ; yet dissentients are still numerous, and projectors every 
now and then start up, with plans for curing all the economical evils 
of society by means of an unHmited issue of inconvertible paper. 
There is, in truth, a great charm in the idea. To be able to pay off 
the national debt, defray the expenses of government without 
taxation, and in fine, to make the fortunes of the whole community, 
is a brilliant prospect, when once a man is capable of believing that 
printing a few characters on bits of paper will do it. The philosopher's 
stone could not be expected to do more. 

As these projects, however often slain, always resuscitate, it is 
not superfluous to examine one or two of the fallacies by which 
tjie schemers impose upon themselves. One of the commonest is, 



INCONVERTIBLE PAPER CURRENCY 547 

that a paper currency cannot be issued in excess so long as every 
note issued represents property, or has 2k foundation of actual property 
to rest on. These phrases, of representing and resting, seldom 
convey any distinct or well-defined idea : when they do, their 
meaning is no more than this — that the issuers of the paper must 
have property, either of their own, or entrusted to them, to the 
value of all the notes they issue : though for what purpose does 
not very clearly appear ; for if the property cannot be claimed in 
exchange for the notes, it is difficult to divine in what manner its 
mere existence can serve to uphold their value. I presume, how- 
ever, it is intended as a guarantee that the holders would be finally 
reimbursed, in case any untoward event should cause the whole 
concern to be wound up. On this theory there have been many 
schemes for " coining the whole land of the country into money " 
and the Hke. 

In so far as this notion has any connexion at all with reason, 
it seems to originate in confounding two entirely distinct evils, to 
which a paper currency is liable. One is, the insolvency of the 
issuers ; which, if the paper is grounded on their credit — if it makes 
any promise of payment in cash, either on demand or at any future 
time — of course deprives the paper of any value which it derives 
from the promise. To this evil paper credit is equally Hable, 
however moderately used ; and against it a proviso that all issues 
should be " founded on property," as for instance that notes should 
only be issued on the security of some valuable thing expressly 
pledged for their redemption, would really be efficacious as a pre- 
caution. But the theory takes no account of another evil, which 
is incident to the notes of the most solvent firm, company, or 
government ; that of being depreciated in value from being issued 
in excessive quantity. The assignats, during the French Revolution, 
were an example of a currency grounded on these principles. The 
assignats " represented " an immense amount of highly valuable 
property, namely the lands of the crown, the church, the monasteries, 
and the emigrants ; amounting possibly to half the territory of 
France. They were, in fact, orders or assignments on this mass of 
land. The revolutionary government had the idea of " coining " 
these lands into money ; but, to do them justice, they did not 
originally contemplate the immense multiplication of issues to whidh 
they were eventually driven by the failure of all other financial 
resources. They imagined that the assignats would come rapidly 
back to the issuers in exchange for land, and that they should be 



BOOK III. CHAPTER XIII. § 3 

able to reissue them continually until the lands were all disposed 
of, without having at any time more than a very moderate quantity 
in circulation. Their hope was frustrated : the land did not sell 
so quickly as they expected ; buyers were not inclined to invest 
their money in possessions which were likely to be resumed without 
compensation if the Revolution succumbed : the bits of paper 
which represented land, becoming prodigiously multiplied, could 
no more keep up their value than the land itself would have done 
if it had all been brought to market at once : and the result was that 
it at last required an assignat of six hundred francs to pay for a 
pound of butter. 1 

The example of the assignats has been said not to be conclusive, 
because an assignat only represented land in general, but not a 
definite quantity of land. To have prevented their depreciation, 
the proper course, it is affirmed, would have been to have made a 
valuation of all the confiscated property at its metallic value, and 
to have issued assignats up to, but not beyond, that limit ; giving 
to the holders a right to demand any piece of land,; at its registered 
valuation, in exchange for assignats to the same amount. There 
can be no question about the superiority of this plan over the one 
actually adopted. Had this course been followed, the assignats could 
never have been depreciated to the inordinate degree they were ; 
for — as they would have retained all their purchasing power in 
relation to land, however much they might have fallen in respect 
to other things — before they had lost very much of their market 
value, they would probably have been brought in to be exchanged 
for land. It must be remembered, however, that their not being 
depreciated would pre-suppose that no greater number of them 
continued in circulation than would have circulated if they had 
been convertible into cash. However convenient, therefore, in a 
time of revolution, this currency convertible into land on demand 
might have been, as a contrivance for selling rapidly a great quantity 
of land with the least possible sacrifice ; it is difficult to see what 
advantage it would have, as the permanent system of a country, 
over a currency convertible into coin : while it is not at all difficult 
to see what would be its disadvantages ; since land is far more 
variable in value than gold and silver ; and besides, land, to most 
persons, being rather an encumbrance than a desirable possession, 
except to be converted into money, people would submit to a 

^ [Until the 6tli ed. (1865) the paragraph ended with " five hundred francs 
to pay for a cup of coffee."] 



INCONVERTIBLE PAPER CURRENCY 549 

much greater depreciation before demanding land, than they will 
before demanding gold or silver,* i 

* Among the schemes of currency to which, strange to say, intelligent 
writers have been found to give their sanction, one is as follows : that the state 
should receive, in pledge or mortgage, any kind or amount of property, such as 
land, stock, &c., and should advance to the owners inconvertible paper money 
to the estimated value. Such a currency would not even have the recom- 
mendations of the imaginary assignats supposed in the text ; since those into 
whose hands the notes were paid by the persons who received them, could not 
return them to the government, and demand in exchange land or stock which 
was only pledged, not alienated. There would be no reflux of such assignats 
as these, and their depreciation would be indefinite. 

1 [In the 2nd ed. (1849) was inserted the following section, which did not 
disappear till the 5th ed. (1862) : 

" § 4. One of the most transparent of the fallacies by which the principle 
of the convertibiUty of paper money has been assailed, is that which pervades 
a recent work by Mr. John Gray, Lectiires on the Nature and Use of Money : 
the author of the most ingenious, and least exceptionable plan of an incon- 
vertible currency which I have happened to meet with. This writer has 
seized several of the leading doctrines of political economy with no ordinary 
grasp, and among others, the important one, that commodities are the real 
market for commodities, and that Production is essentially the cause and 
measure of Demand. But this proposition, true in a state of barter, he affirms 
to be false under a monetary system regulated by the precious metals, because 
if the aggregate of goods is increased faster than the aggregate of money, prices 
must fall, and all producers must be losers ; now neither gold nor silver, nor 
any other valuable thing, ' can by any possibility be increased ad libitum, 
as fast as all other valuable things put together : ' a limit, therefore, is arbi- 
trarily set to the amount of production which can take place without loss 
to the producers : and on this foundation Mr. Gray accuses the esistiag 
system of rendering the produce of this country less by at least one hundred 
milUon pounds annually, than it would be under a currency which admitted 
of expansion in exact proportion to the increase of commodities. 

*'But,in the first place, what hinders gold, or any other commodity whatever, 
from being * increased as fast as all other valuable things put together ? ' 
If the produce of the world, in all commodities taken together, should come 
to be doubled, what is to prevent the annual produce of gold from being 
doubled likewise ? for that is all that would be necessary, and not (as might 
be inferred from Mr. Gray's language) that it should be doubled as many 
times over as there are other ' valuable things ' to compare it with. Unless 
it can be proved that the production of bullion cannot be increased by the 
application of increased labour and capital, it is evident that the stimulus of an 
increased value of the commodity will have the same effect in extending the 
mining operations, as it is admitted to have in all other branches of production. 

"But, secondly, even if the currency could not be increased at all, and if 
every addition to the aggregate produce of the country must necessarily be 
accompanied by a proportional diminution of general prices ; it is incom- 
prehensible how any person who has attended to the subject can fail to see that 
a fall of price, thus produced, is no loss to producers : they receive less money ; 
but the smaller amount goes exactly as far, in all expenditure, whether pro- 
ductive or personal, as the larger quantity did before. The only difference 
would be in the increased burthen of fixed money payments ; and of that 
(coming, as it would, very gradually) a very small portion would fall on the 
productive classes, who have rarely any debts of old standing, and who would 



550 BOOK III. CHAPTER XIII. § 4 

§ 4. Another of the fallacies from which the advocates of an 
inconvertible currency derive support, is the notion that an increase 
of the currency quickens industry. This idea was set afloat by 
Hume, in his Essay on Money, and has had many devoted adherents 
since ; witness the Birmingham currency school, of whom Mr. 
Attwood was at one time the most conspicuous representative. 
Mr. Attwood maintained that a rise of prices, produced by an increase 
of paper currency, stimulates every producer to his utmost exertions, 
and brings all the capital and labour of the country into complete 
employment ; and that this has invariably happened in all periods 
of rising prices, when the rise was on a sufficiently great scale. I 
presume, however, that the inducement which, according to Mr. 
Attwood, excited this unusual ardour in all persons engaged in 
production, must have been the expectation of getting more com- 
modities generally, more real wealth, in exchange for the produce 
of their labour, and not merely more pieces of paper. This expecta- 
tion, however, must have been, by the very terms of the supposition, 
disappointed, since, all prices being supposed to rise equally, no 
one was really better paid for his goods than before. Those who 
agree with Mr. Attwood could only succeed in winning people on 
to these unwonted exertions by a prolongation of what would in 
fact be a delusion ; contriving matters so, that by a progressive 
rise of money prices, every producer shall always seem to be in 
the very act of obtaining an increased remuneration which he never, 
in reaUty, does obtain. It is unnecessary to advert to any other 
of the objections to this plan than that of its total impracticability. 
It calculates on finding the whole world persisting for ever in the 
behef that more pieces of paper are more riches, and never discover- 
ing that, with all their paper, they cannot buy more of anything 
than they could before. No such mistake was made during any 
of the periods of high prices, on the experience of which this school 
lays so much stress. At the periods which Mr. Attwood mistook 
for times of prosperity, and which were simply (as all periods of 
high prices, under a convertible currency, must be) times of specula- 
tion, the speculators did not think they were growing rich because 
the high prices would last, but because they would not last, and 
because whoever contrived to realize while they did last, would 
find himself, after the recoil, in possession of a greater number of 
pounds sterHng, without their having become of less value. If, at 

suffer almost solely in the increased onerousness of their contribution to the 
taxes which pay the interest of the National Debt."] 



I 



INCONVERTIBLE PAPER CURRENCY 651 

the close of tlie speculation, an issue of paper liad been made, 
sufficient to keep prices up to the point which they attained when 
at the highest, no one would have been more disappointed than 
the speculators ; since the gain which they thought to have reaped 
by realizing in time (at the expense of their competitors, who bought 
when they sold, and had to sell after the revulsion) would have 
faded away in their hands, and instead of it they would have got 
nothing except a few more paper tickets to count by. 

Hume's version of the doctrine differed in a sKght degree from 
Mr. Attwood's. He thought that all commodities would not rise 
in price simultaneously, and that some persons therefore would 
obtain a real gain, by getting more money for what they had to 
sell, while the things which they wished to buy might not yet have 
risen. And those who would reap this gain would always be (he 
seems to think) the first comers. It seems obvious, however, that 
for every person who thus gains more than usual, there is necessarily 
some other person who gains less. The loser, if things took place 
as Hume supposes, would be the seller of the commodities which 
are slowest to rise ; who, by the supposition, parts with his goods 
at the old prices, to purchasers who have already benefited by the 
new. This seller has obtained for his commodity only the accus- 
tomed quantity of money, while there are already some things of 
which that money will no longer purchase as much as before. If, 
therefore, he knows what is going on, he will raise his price, and 
then the buyer will not have the gain, which is supposed to stimulate 
bis industry. But if, on the contrary, the seller does not know 
the state of the case, and only discovers it when he finds, in laying 
his money out, that it does not go so far, he then obtains less than 
the ordinary remuneration for his labour and capital ; and if the 
other dealer's industry is encouraged, it should seem that his must, 
from the opposite cause, be impaired. 

§ 5. There is no way in which a general and permanent rise 
of prices, or in other words, depreciation of money, can benefit 
anybody, except at the expense of somebody else. The substitu- 
tion of paper for metallic currency is a national gain : any further 
increase of paper beyond this is but a form of robbery. 

An issue of notes is a manifest gain to the issuers, who, until 
the notes are returned for payment, ootain the use of them as if 
they were a real capital : and so long as the notes are no permanent 
addition to the currency, out merely supersede gold or silver to 



552 BOOR III. CHAPTER XIII. § 6 

the same amount, tlie gain of the issuer is a loss to no one ; it is 
obtained by saving to the community the expense of the more 
costly material. But if there is no gold or silver to be superseded 
— if the notes are added to the currency, instead of being substituted 
for the metalhc part of it — all holders of currency lose, by the depre- 
ciation of its value, the exact equivalent of what the issuer gains. 
A tax is virtually levied on them for his benefit. It will be objected 
by some, that gains are also made by the producers and dealers 
who, by means of the increased issue, are accommodated with 
loans. Theirs, however, is not an additional gain, but a portion 
of that which is reaped by the issuer at the expense of all possessors 
of money. The profits arising from the contribution levied upon the 
pubHc, he does not keep to himself, but divides with his customers. 

But besides the benefit reaped by the issuers, or by others through 
them, at the expense of the pubHc generally, there is another unjust 
gain obtained by a larger class, namely by those who are under 
fixed pecuniary obHgations. All such persons are freed, by a 
depreciation of the currency, from a portion of the burthen of their 
debts or other engagements : in other words, part of the property 
of their creditors is gratuitously transferred to them. On a super- 
ficial view it may be imagined that this is an advantage to industry ; 
since the productive classes are great borrowers, and generally owe 
larger debts to the unproductive (if we include among the latter 
all persons not actually in business) than the unproductive classes 
owe to them ; especially if the national debt be included. It is 
only thus that a general rise of prices can be a source of benefit to 
producers and dealers ; by diminishing the pressure of their fixed 
burthens. And this might be accounted an advantage, if integrity 
and good faith were of no importance to the world, and to industry 
and commerce in particular. Not many, however, have been found 
to say that the currency ought to be depreciated on the simple 
ground of its being desirable to rob the national creditor and private 
creditors of a part of what is in their bond. The schemes which 
have tended that way have almost always had some appearance of 
special and circumstantial justification, such as the necessity of com- 
pensating for a prior injustice committed in the contrary direction. 

§ 6. Thus in England, for many years subsequent to 1819, it 
was pertinaciously contended, that a large portion of the national 
debt and a multitude of private debts still in existence, were con- 
tracted between 1797 and 1819, when the Bank of England waa 



INCONVERTIBLE PAPER CURRENCY 653 

eS:empted from giving cash for its notes ; and that it is grossly 
unjust to borrowers (that is, in the case of the national debt, to 
all tax-payers) that they should be paying interest on the same 
nominal sums in a currency of full value, which were borrowed in 
a depreciated one.^ The depreciation, according to the views and 
objects of the particular writer, was represented to have averaged 
thirty, fifty, or even more than fifty per cent : and the conclusion 
was, that either we ought to return to this depreciated currency, 
or to strike ofi from the national debt, and from mortgages or 
other private debts of old standing, a percentage corresponding 
to the estimated amount of the depreciation. 

To this doctrine, the following was the answer usually made. 
Granting that, by returning to cash payments without lowering 
the standard, an injustice was done to debtors, in holding them 
liable for the same amount of a currency enhanced in value, which 
they had borrowed while it was depreciated ; it is now too late to 
make reparation for this injury. The debtors and creditors of 
to-day are not the debtors and creditors of 1819 : the lapse of years 
has entirely altered the pecuniary relations of the community ; 
and it being impossible now to ascertain the particular persons 
who were either benefited or injured, to attempt to retrace our 
steps would not be redressing a wrong, but superadding a second 
act of wide-spread injustice to the one already committed. This 
argument is certainly conclusive on the practical question ; but 
it places the honest conclusion on too narrow and too low a ground. 
It concedes that the measure of 1819, called Peel's Bill, by which 
cash payments were resumed at the original standard of 31. 17s. lO^d., 
was really the injustice it was said to be. This is an admission 
wholly opposed to the truth. Parliament had no alternative ; it 
was absolutely bound to adhere to the acknowledged standard ; 
as may be shown on three distinct grounds, two of fact, and one of 
principle. 

The reasons of fact are these. In the first place, it is not true that 
the debts, private or public, incurred during the Bank restriction, 
were contracted in a currency of lower value than that in which the 
interest is now paid. It is indeed true that the suspension of the 
obhgation to pay in specie did put it in the power of the Bank to 
depreciate the currency. It is true also that the Bank reaUy exercised 

^ [Until the 5th ed. (1862) the text ran : " from 1819 to the present time, 
it has been . . . contended," and " the answer " was spoken of in the present 
tense.] 



554 BOOK III. CHAPTER XIII. § 6 

that power, though to a far less extent than is often pretended ; 
since the difference between the market price of gold and the Mint 
valuation, during the greater part of the interval, was very trifling, 
and when it was greatest, during the last five years of the war, 
did not much exceed thirty per cent. To the extent of that 
difference, the currency was depreciated, that is, its value was 
below that of the standard to which it professed to adhere. But the 
state of Europe at that time was such — there was so unusual an 
absorption of the precious metals, by hoarding, and in the military 
chests of the vast armies which then desolated the Continent, 
that the value of the standard itself was very considerably raised : 
and the best authorities, among whom it is sufficient to name Mr. 
Tooke, have, after an elaborate investigation, satisfied themselves 
that the difference between paper and bullion was not greater 
than the enhancement in value of gold itself, and that the paper, 
though depreciated relatively to the then value of gold, did not 
sink below the ordinary value, at other times, either of gold or of 
a convertible paper. If this be true (and the evidences of the 
fact are conclusively stated in Mr. Tooke' s History of Prices) the 
foundation of the whole case against the fundholder and other 
creditors on the ground of depreciation is subverted. 

But, secondly, even if the currency had really been lowered 
in value at each period of the Bank restriction, in the same degree 
in which it was depreciated in relation to its standard, we must 
remember that a part only of the national debt, or of other permanent 
engagements, was incurred during the Bank restriction. A large 
part had been contracted before 1797 ; a still larger during the early 
years of the restriction, when the difference between paper and gold 
was yet small. To the holders of the former part, an injury was 
done, by paying the interest for twenty-two years in a depreciated 
currency : those of the second, suffered an injury during the years 
in which the interest was paid in a currency more depreciated than 
that in which the loans were contracted. To have resumed cash 
payments at a lower standard would have been to perpetuate the 
injury to these two classes of creditors, in order to avoid giving an 
undue benefit to a third class, who had lent their money during the 
few years of greatest depreciation. As it is, there was an underpay- 
ment to one set of persons, and an overpayment to another. The 
late Mr. Mushet took the trouble to make an arithmetical comparison 
between the two amounts. He ascertained, by calculation, that if 
an account had been made out in 1819, of what the fundholders had 



INCONVERTIBLE PAPER CURRENCY 555 

gained and lost by the variation of the paper currency from its 
standard, they would have been found as a body to have been losers ; 
so that if any compensation was due on the ground of depreciation, 
it would not be from the fundholders collectively, but to them. 

Thus it is with the facts of the case. But these reasons of fact 
are not the strongest. There is a reason of principle, still more 
powerful. Suppose that, not a part of the debt merely, but the 
whole, had been contracted in a depreciated currency, depreciated 
not only in comparison with its standard, but with its own value 
before and after ; and that we were now paying the interest on this 
debt in a currency fifty or even a hundred per cent more valuable 
than that in which it was contracted. What difference would this 
make in the obhgation of paying it, if the condition that it should be 
so paid was part of the original compact ? Now this is not only 
truth, but less than the truth. The compact stipulated better terms 
for the fundholder than he has received. During the whole con- 
tinuance of the Bank restriction, there was a parliamentary pledge, 
by which the legislature was as much bound as any legislature is 
capable of binding itself, that cash payments should be resumed on 
the original footing, at farthest in six months after the conclusion of 
a general peace. This was therefore an actual condition of every 
loan ; and the terms of the loan were more favourable in considera- 
tion of it. Without some such stipulation, the Government could 
not have expected to borrow, unless on the terms on which loans 
are made to the native princes of India. If it had been understood 
and avowed that, after borrowing the money, the standard at which 
it was commuted might be permanently lowered, to any extent 
which to the " collective wisdom " of a legislature of borrowers 
might seem fit — who can say what rate of interest would have been 
a suf&cient inducement to persons of common sense to risk their 
savings in such an adventure ? However much the fundholders had 
gained by the resumption of cash payments, the terms of the con- 
tract insured their giving ample value for it. They gave value for 
more than they received ; since cash payments were not resumed in 
six months, but in as many years, after the peace. So that waiving 
all our arguments except the last, and conceding all the facts asserted 
on the other side of the question, the fundholders, instead of being 
unduly benefited, are the injured party ; and would have a claim to 
compensation, if such claims were not very properly barred by the 
impossibility of adjudication, and by the salutary general maxim 
of law and policy, " quod interest reipubHcae ut sit finis litium.'* 



CHAPTER XIV 

OF EXCESS OF SUPPLY 

§ 1. After the elementary exposition of the theory of money 
contained in the last few chapters, we shall return to a question in 
the general theory of Value, which could not be satisfactorily dis- 
cussed until the nature and operations of Money were in some measure 
understood^ because the errors against which we have to contend 
mainly originate in a misunderstanding of those operations. 

We have seen that the value of everything gravitates towards 
a certain medium point (which has been called the Natural Value), 
namely, that at which it exchanges for every other thing in the ratio 
of their cost of production. We have seen, too, that the actual or 
market value coincides, or nearly so, with the natural value only on 
an average of years ; and is continually either rising above, or falling 
below it, from alterations in the demand, or casual fluctuations in the 
supply : but that these variations correct themselves, through the 
tendency of the supply to accommodate itself to the demand which 
exists for the commodity at its natural value. A general conver- 
gence thus results from the balance of opposite divergences. Dearth, 
or scarcity, on the one hand, and over-supply, or in mercantile 
language, glut, on the other, are incident to all commodities. In the 
first case, the commodity afiords to the producers or sellers, while 
the deficiency lasts, an unusually high rate of profit : in the second, 
the supply being in excess of that for which a demand exists at such 
a value as will afford the ordinary profit, the sellers must be content 
with less, and must, in extreme cases, submit to a loss. 

Because this phenomenon of over-supply, and consequent incon- 
venience or loss to the producer or dealer, may exist in the case 
of any one commodity whatever, many persons, including some 
distinguished political economists, have thought that it may exist 
with regard to all commodities ; that there may be a general over- 
production of wealth ; a supply of commodities in the aggregate, 



EXCESS OF SUPPLY 657 

surpassing the demand ; and a consequent depressed condition of 
all classes of producers. Against this doctrine, of which Mr. Malthus 
and Dr. Chalmers in this country, and M. de Sismondi on the Conti- 
nent, were the chief apostles, I have already contended in the First 
Book ; * but it was not possible, in that stage of our inquiry, to enter 
into a complete examination of an error (as I conceive) essentially 
grounded on a misunderstanding of the phenomena of Value and 
Price. 

The doctrine appears to me to involve so much inconsistency 
in its very conception, that I feel considerable difficulty in giving any 
statement of it which shall be at once clear, and satisfactory to its 
supporters. They agree in maintaining that there may be, and some- 
times is, an excess of productions in general beyond the demand for 
them ; that when this happens, purchasers cannot be found at 
prices which will repay the cost of production with a profit ; that 
there ensues a general depression of prices or values (they are 
seldom accurate in discriminating between the two), so that pro- 
ducers, the more they produce, find themselves the poorer, instead 
of richer ; and Dr. Chalmers accordingly inculcates on capitalists the 
practice of a moral restraint in reference to the pursuit of gain; 
while Sismondi deprecates machinery, and the various inventions 
which increase productive power. They both maintain that accumu- 
lation of capital may proceed too fast, not merely for the moral, but 
for the material, interests of those who produce and accumulate ; 
and they enjoin the rich to guard against this evil by an ample 
unproductive consumption. 

§ 2. When these writers speak of the supply of commodities 
as outrunning the demand, it is not clear which of the two elements 
of demand they have in view — the desire to possess, or the means of 
purchase ; whether their meaning is that there are, in such cases, 
more consumable products in existence than the public desires to 
consume, or merely more than it is able to pay for. In this uncer- 
tainty, it is necessary to examine both suppositions. 

First, let us suppose that the quantity of commodities produced 
is not greater than the community would be glad to consume : is 
it, in that case, possible that there should be a deficiency of demand 
for all commodities for want of the means of payment ? Those who 
think so cannot have considered what it is which constitutes the 
means of payment for commodities. It is simply commodities, 

* Supra, pp. 66-^8. 



558 BOOK IIL CHAPTER XIV. § 3 

Eacli person's means of paying for the productions of other people 
consists of tliose which he himself possesses. All sellers are inevit-. 
ably and ex vi termini buyers. Could we suddenly double the 
productive powers of the country, we should double the supply of 
commodities in every market ; but we should, by the same stroke, 
double the purchasing power. Everybody would bring a double 
demand as well as supply : everybody would be able to buy twice as 
much, because every one would have twice as much to ofier in ex- 
change. It is probable, indeed, that there would now be a superfluity 
of certain things. Although the community would wilHngly double 
its aggregate consumption, it may already have as much as it desires 
of some commodities, and it may prefer to do more than double its 
consumption of others, or to exercise its increased purchasing power 
on some new thing. If so, the supply will adapt itself accordingly, 
and the values of things will continue to conform to their cost 
of production. At any rate, it is a sheer absurdity that all things 
should fall in value, and that all producers should, in consequence, 
be insufficiently remunerated. If values remain the same, what 
becomes of prices is immaterial, since the remuneration of producers 
does not depend on how much money, but on how much of consum- 
able articles, they obtain for their goods. Besides, money is a 
commodity ; and if all commodities are supposed to be doubled in 
quantity, we must suppose money to be doubled too, and then prices 
would no more fall than values would. 

§ 3. A general over-supply, or excess of all commodities 
above the demand, so far as demand consists in means of payment, 
is thus shown to be an impossibility. But it may perhaps be sup- 
posed that it is not the ability to purchase, but the desire to possess, 
that falls short, and that the general produce of industry may be 
greater than the community desires to consume — the part, at least, 
of the community which has an equivalent to give. It is evident 
enough that produce makes a market for produce, and that there is 
wealth in the country with which to purchase all the wealth in the 
country ; but those who have the means may not have the wants, 
and those who have the wants may be without the means. A 
portion, therefore, of the commodities produced may be unable 
to find a market from the absence of means in those who have 
the desire to consume, and the want of desire in those who have 
the means. 

This is much the most plausible form of the doctrine, and does 



EXCESS OF SUPPLY 559 

not, like that whicli we first examined, involve a contradiction. 
There may easily be a greater quantity of any particular commodity 
than is desired by those who have the ability to purchase, and it is 
abstractedly conceivable that this might be the case with all com- 
modities. The error is in not perceiving that though all who have 
an equivalent to give might be fully provided with every consumable 
article which they desire, the fact that they go on adding to the 
production proves that this is not actually the case. Assume the 
most favourable hypothesis for the purpose, that of a limited com- 
munity, every member of which possesses as much of necessaries 
and of all known luxuries as he desires : and since it is not conceiv- 
able that persons whose wants were completely satisfied would labour 
and economi-ze to obtain what they did not desire, suppose that a 
foreigner arrives and produces an additional quantity of something 
of which there was already enough. Here, it will be said, is over- 
production : true, I reply ; over-production of that particular 
article : the community wanted no more of that, but it wanted 
something. The old inhabitants, indeed, wanted nothing ; but did 
not the foreigner himself want something ? When he produced 
the superfluous article, was he labouring without a motive ? He has 
produced, but the wrong thing instead of the right. He wanted, 
perhaps, food, and has produced watches, with which everybody was 
sufficiently supplied. The new comer brought with him into the 
country a demand for commodities, equal to all that he could produce 
by his industry, and it was his business to see that the supply he 
brought should be suitable to that demand. If he could not produce 
something capable of exciting a new want or desire in the community, 
for the satisfaction of which some one would grow more food and give 
it to him in exchange, he had the alternative of growing food for 
himself ; either on fresh land, if there was any unoccupied, or as a 
tenant, or partner, or servant, of some former occupier, willing to be 
partially relieved from labour. He has produced a thing not wanted 
instead of what was wanted ; and he himself, perhaps, is not the 
kind of producer who is wanted ; but there is no over-production ; 
production is not excessive, but merely ill assorted. We saw before, 
that whoever brings additional commodities to the market, brings 
an additional power of purchase ; we now see that he brings also 
an additional desire to consume ; since if he had not that desire, 
he would not have troubled himself to produce. Neither of the 
elements of demand, therefore, can be wanting, when there is an 
additional supply ; though it is perfectly possible that the demand 



560 BOOK III. CHAPTER XIV. § 4 

may be for one tMng, and the supply may unfortunately consist of 
anotlier. 

Driven to his last retreat, an opponent may perhaps allege that 
there are persons who produce and accumulate from mere habit ; 
not because they have any object in growing richer, or desire to add 
in any respect to their consumption, but from vis inertice. They 
continue producing because the machine is ready mounted, and save 
and re-invest their savings because they have nothing on which they 
care to expend them. I grant that this is possible, and in some few 
instances probably happens ; but these do not in the smallest degree 
affect our conclusion. For, what do these persons do with their 
savings ? They invest them productively ; that is, expend them in 
employing labour. In other words, having a purchasing power 
belonging to them, more than they know what to do with, they make 
over the surplus of it for the general benefit of the labouring class. 
Now, will that class also not know what to do with it ? Are we to 
suppose that they too have their wants perfectly satisfied, and go oi^ 
labouring from mere habit ? Until this is the case ; until the work- 
ing classes have also reached the point of satiety — there will be no 
want of demand for the produce of capital, however rapidly it may 
accumulate ; since, if there is nothing else for it to do, it can always 
find employment in producing the necessaries or luxuries of the 
labouring class. And when they too had no further desire for 
necessaries or luxuries, they would take the benefit of any further 
increase of wages by diminishing their work ; so that the over- 
production which then for the first time would be possible in idea, 
could not even then take place in fact, for want of labourers. 
Thus, in whatever manner the question is looked at, even though 
we go to the extreme verge of possibility to invent a supposition 
favourable to it, the theory of general over-production implies an 
absurdity. 

§ 4. What then is it by which men who have reflected much on 
economical phenomena, and have even contributed to throw new 
Hght upon them by original speculations, have been led to embrace 
so irrational a doctrine ? I conceive them to have been deceived 
by a mistaken interpretation of certain mercantile facts. TJiey 
imagined that the possibility of a general over-supply of commodities 
was proved by experience. They believed that they saw this 
phenomenon in certain conditions of the markets, the true explana- 
tion of which is totally difierent. 



EXCESS OF SUPPLY 661 

I have already described the state of the markets for conmiodities 
which accompanies what is termed a commercial crisis. At such 
times there is really an excess of all commodities above the money 
demand : in other words, there is an under-supply of money. From 
the sudden annihilation of a great mass of credit, every one disHkes 
to part with ready money, and many are anxious to procure it at 
any sacrifice. Almost everybody therefore is a seller, and there are 
scarcely any buyers ; so that there may really be, though only while 
the crisis lasts, an extreme depression of general prices, from what 
may be indiscriminately called a glut of commodities or a dearth of 
money. But it is a great error to suppose, with Sismondi, that a 
commercial crisis is the effect of a general excess of production. 
It is simply the consequence of an excess of speculative purchases. 
It is not a gradual advent of low prices, but a sudden recoil from 
prices extravagantly high : its immediate cause is a contraction 
of credit, and the remedy is, not a diminution of supply, but the 
restoration of confidence. It is also evident that this temporary 
derangement of markets is an evil only because it is temporary. 
The fall being solely of money prices, if prices did not rise again no 
dealer would lose, since the smaller price would be worth as much to 
him as the larger price was before. In no manner does this pheno- 
menon answer to the description which these celebrated economists 
have given of the evil of over-production. The permanent decline 
in the circumstances of producers, for want of markets, which those 
writers contemplate, is a conception to which the nature of a com- 
mercial crisis gives no support. 

The other phenomenon from which the notion of a general excess of 
wealth and superfluity of accumulation seems to derive countenance, 
is one of a more permanent nature, namely, the fall of profits and 
interest which naturally takes place with the progress of population 
and production. The cause of this dechne of profit is the increased 
cost of maintaining labour, which results from an increase of popula- 
tion and of the demand for food, outstripping the advance of agri- 
cultural improvement. This important feature in the economical 
progress of nations will receive fuU consideration and discussion in 
the succeeding Book.* It is obviously a totally different thing 
from a want of market for commodities, though often confounded 
with it in the complaints of the producing and trading classes. 
The true interpretation of the modern or present state of industrial 
economy is that there is hardly any amount of business which may 

* Infra, book iv. chap. 4. 



562 BOOK III. CHAPTER XIV. § 4 

not be done, if people will be content to do it on small profits ; and 
tbis all active and intelligent persons in business perfectly well know ; 
but even tbose wbo comply with the necessities of their time, grumble 
at what they comply with, and wish that there were less capital, 
or, as they express it, less competition, in order that there might be 
greater profits. Low profits, however, are a different thing from 
deficiency of demand ; and the production and accumulation 
which merely reduce profits, cannot be called excess of supply 
or of production. What the phenomenon really is, and its effects 
and necessary Umits, will be seen when we treat of that express 
subject. 

I know not of any economical facts, except the two I have speci- 
fied, which can have given occasion to the opinion that a general 
over-production of commodities ever presented itself in actual experi- 
ence. I am convinced that there is no fact in commercial affairs 
which, in order to its explanation, stands in need of that chimerical 
supposition. 

The point is fundamental ; any difference of opinion on it involves 
radically different conceptions of Political Economy, especially in 
its practical aspect. On the one view, we have only to consider how 
a sufficient production may be combined with the best possible 
distribution ; but, on the other, there is a third thing to be considered 
— how a market can be created for produce, or how production can 
be limited to the capabilities of the market. Besides, a theory so 
essentially self-contradictory cannot intrude itself without carrying 
confusion into the very heart of the subject, and making it impossible 
even to conceive with any distinctness many of the more compli- 
cated economical workings of society. This error has been, I 
conceive, fatal to the systems, as systems, of the three distinguished 
economists to whom I before referred, Malthus, ChalniLers, and Sis- 
mondi ; all of whom have admirably conceived and explained several 
of the elementary theorems of political economy, but this fatal 
misconception has spread itself Hke a veil between them and the more 
difficult portions of the subject, not suffering one ray of light to pene- 
trate. Still more is this same confused idea constantly crossing and 
bewildering the speculations of minds inferior to theirs. It is but 
justice to two eminent names to call attention to the fact, that the 
merit of having placed this most important point in its true light 
belongs principally, on the Continent, to the judicious J. B. Say, 
and in this country to Mr. [James] Mill ; who (besides the conclusive 
exposition which he gave of the subject in his Elements of Political 



EXCESS OF SUPPLY 563 

Economy) had set forth the correct doctrine with great force and 
clearness in an early pamphlet, called forth by a temporary contro- 
versy, and entitled Commerce Defended; the first of his writings 
which attained any celebrity, and which he prized more as having 
been his first introduction to the friendship of David Ricardo, the 
most valued and most intimate friendship of his life. 



CHAPTER XV 

OF A MEASURE OP VAT-UE 

§ 1. Theee has been much discussion among political econo- 
mists respecting a Measure of Value. An importance has been 
attached to the subject greater than it deserved, and what has 
been written respecting it has contributed not a little to the reproach 
of logomachy, which is brought, with much exaggeration, but not 
altogether without ground, against the specidations of political 
economists. It is necessary, however, to touch upon the subject, if 
only to show how Httle there is to be said on it. 

A Measure of Value, in the ordinary sense of the word measure, 
would mean something by comparison with which we may ascer- 
tain what is the value of any other thing. When we consider farther, 
that value itself is relative, and that two things are necessary to 
constitute it, independently of the third thing which is to measure it ; 
we may define a Measure of Value to be something, by comparing 
with which any two other things, we may infer their value in relation 
to one another. 

In this sense, any commodity will serve as a measure of value at 
a given time and place ; since we can always infer the proportion in 
which things exchange for one another, when we know the propor- 
tion in which each exchanges for any third thing. To serve as a 
convenient measure of value is one of the functions of the commodity 
selected as a medium of exchange. It is in that commodity that the 
values of all other things are habitually estimated. We say that one 
thing is worth 21. ^ another 3?. ; and it is then known, without express 
statement, that one is worth two-thirds of the other, or that the 
things exchange for one another in the proportion of 2 to 3. Money 
is a complete measure of their value. 

But the desideratum sought by pohtical economists is not a 
measure of the value of things at the same time and place, but a 
measure of the value of the same thing at different times and places : 



MEASURE OF VALUE 565 

something by comparison \vitli whicli it may be known whetber any 
given tbing is of greater or less value now tban a century ago, or in 
tbis country tban in America or Cbina. And for tbis also, money, 
or any otber commodity, will serve quite as well as at tbe same time 
and place, provided we can obtain tbe same data ; provided we are 
able to compare witb tbe measure not one commodity only, but tbe 
two or more whicb are necessary to tbe idea of value. If wbeat is 
now [1852] 40s. tbe quarter, and a fat sbeep tbe same, and if in tbe 
time of Henry tbe Second wbeat was 20s., and a sbeep 10s., we know 
tbat a quarter of wbeat was tben wortb two sbeep, and is now only 
wortb one, and tbat tbe value tberefore of a sbeep, estimated in 
wbeat, is twice as great as it was tben ; quite independently of tbe 
value of money at tbe two periods, eitber in relation to tbose two 
articles (in respect to botb of wbicb we suppose it to bave fallen), or 
to otber commodities in respect to wbicb we need not make any 
supposition. 

Wbat seems to be desired, bowever, by writers on tbe subject, is 
some means of ascertaining tbe value of a commodity by merely 
comparing it witb tbe measure, witbout referring it specially to any 
otber given commodity. Tbey would wisb to be able, from tbe mere 
fact tbat wbeat is now 4:0s. tbe quarter, and was formerly 20s., to 
decide wbetber wbeat bas varied in its value, and in wbat degree, 
witbout selecting a second commodity, sucb as a sbeep, to compare 
it witb ; because tbey are desirous of knowing, not bow mucb 
wbeat bas varied in value relatively to sbeep, but bow mucb it bas 
varied relatively to things in general, 

Tbe first obstacle arises from the necessary indefiniteness of tbe 
idea of general exchange value — value in relation not to some one 
commodity, but to commodities at large. Even if we knew exactly 
how much a quarter of wheat would have purchased, at the earlier 
period, of every marketable article considered separately, and tbat 
it will now purchase more of some things and less of others, we should 
often find it impossible to say whether it had risen or fallen in rela- 
tion to things in general. How much more impossible, when we 
only know bow it has varied in relation to tbe measure. To enable 
tbe money price of a tbing at two different periods to measure tbe 
quantity of things in general which it will exchange for, the same 
sum of money must correspond at botb periods to tbe same quantity 
of things in general, that is, money must always bave the same 
exchange value, tbe same general purchasing power. Now, not 
only is this not true of money, or of any other commodity, but we 



566 BOOK III. CHAPTER XV. § 2 

cannot even suppose any state of cireumstances in which it would 
be true. 

§ 2. A measure of exchange value, therefore, being impossible, 
writers have formed a notion of something, under the name of a 
measure of value, which would be more properly termed a measure of 
cost of production. They have imagined a commodity invariably 
produced by the same quantity of labour ; to which supposition it 
is necessary to add, that the fixed capital employed in the production 
must bear always the same proportion to the wages of the immediate 
labour, and must be always* of the same durability : in short, the 
same capital must be advanced for the same length of time, so that 
the element of value which consists of profits, as well as that which 
consists of wages, may be unchangeable. We should then have a 
commodity always produced under one and the same combination 
of all the circumstances which afiect permanent value. Such a 
commodity would be by no means constant in its exchange value ; 
for (even without reckoning the temporary fluctuations arising from 
supply and demand) its exchange value would be altered by every 
change in the circumstances of production of the things against 
which it was exchanged. But if there existed such a commodity, 
we should derive this advantage from it, that whenever any other 
thing varied permanently in relation to it. we should know that the 
cause of variation was not in it, but in the other thing. It would 
thus be suited to serve as a measure, not indeed of the value of other 
things, but of their cost of production. If a commodity acquired, a 
greater permanent purchasing power in relation to the invariable 
commodity, its cost of production must have become greater ; and 
in the contrary case, less. This measure of cost is what poHtical 
economists have generally meant by a measure of value. 

But a measure of cost, though perfectly conceivable, can no 
more exist in fact, than a measure of exchange value. There is no 
commodity which is invariable in its cost of production. Gold and 
silver are the least variable, but even these are hable to changes in 
their cost of production, from the exhaustion of old sources of supply, 
the discovery of new, and improvements in the mode of working. 
If we attempt to ascertain the changes in the cost of production of 
any commodity from the changes in its money price, the conclusion 
will require to be corrected by the best allowance we can make for the 
intermediate changes in the cost of the production of money itself. 

Adam Smith fancied that there were two commodities peculiarly 



MEASURE OF VALUE 667 

fitted to serve as a measure of value : corn, and labour. Of corn, 
lie said that although its value fluctuates much from year to year, it 
does not vary greatly from century to century. This we now know 
to be an error : corn tends to rise in cost of production with every 
increase of population, and to fall with every improvement in agri- 
culture, either in the country itself, or in any foreign country from 
which it draws a portion of its supphes. The supposed constancy 
of the cost of the production of corn depends on the maintenance of 
a complete equipoise between these antagonizing forces, an equipoise 
which, if ever realized, can only be accidental. With respect to 
labour as a measure of value, the language of Adam Smith is not 
uniform. He sometimes speaks of it as a good measure only for 
short periods, saying that the value of labour (or wages) does not 
vary much from year to year, though it does from generation to 
generation. On other occasions he speaks as if labour were intrinsi- 
cally the most proper measure of value, on the ground that one day's 
ordinary muscular exertion of one man, may be looked upon as 
always, to him, the same amount of eSort or sacrifice. But this 
proposition, whether in itself admissible or not, discards the idea of 
exchange value altogether, substituting a totally different idea, 
more analogous to value in use. If a day's labour will purchase 
in America twice as much of ordinary consumable articles as in 
England, it seems a vain subtlety to insist on saying that labour is 
of the same value in both countries, and that it is the value of the 
other things which is difierent. Labour, in this case, may be cor- 
rectly said to be twice as valuable, both in the market and to the 
labourer himself, in America as in England. 

If the object were to obtain an approximate measure by which 
to estimate value in use, perhaps nothing better could be chosen 
than one day's subsistence of an average man, reckoned in the 
ordinary food consumed by the class of unskilled labourers. If in 
any country a pound of maize flour will support a labouring man for 
a day, a thing might be deemed more or less valuable in proportion 
to the number of pounds of maize flour it exchanged for. If one 
thing, either by itself or by what it would purchase, could maintain 
a labouring man for a day, and another could maintain him for a 
week, there would be some reason in saying that the one was worth, 
for ordinary human uses, seven times as much as the other. But this 
would not measure the worth of the thing to its possessor for his own 
purposes, which might be greater to any amount, though it could not 
be less, than the worth of the food which the thing would purchase. 



568 ^ BOOK III. CHAPTER XV. § 2 

The idea of a Measure of Value must not be confounded with the 
idea of the regulator, or determining principle, of value. When it is 
said by Ricardo and others, that the value of a thing is regulated 
by quantity of labour, they do not mean the quantity of labour for 
which the thing will exchange, but the quantity required for pro- 
ducing it. This, they mean to affirm, determines its value ; causes 
it to be of the value it is, and of no other. But when Adam Smith 
and Malthus say that labour is a measure of value, they do not 
mean the labour by which the thing was or can be made, but the 
quantity of labour which it will exchange for, or purchase ; in other 
words, the value of the thing estimated in labour. And they do not 
mean that this regulates the general exchange value of the thing, or 
has any effect in determining what that value shall be, but only 
ascertains what it is, and whether and how much it varies from time 
to time and from place to place. To confound these two ideas 
would be much the same thing as to overlook the distinction between 
the thermometer and the fire. 



CHAPTER XVI 

OP SOME PECULIAR CASES OF VALUE 

§ 1. The general laws of value, in all the more important 
cases of the interchange of commodities in the same country, have 
now been investigated. We examined, first, the case of monopoly, 
in which the value is determined by either a natural or an artificial 
Umitation of quantity, that is, by demand and supply ; secondly, 
the case of free competition, when the article can be produced in 
indefinite quantity at the same cost ; in which case the permanent 
value is determined by the cost of production, and only the fluctua- 
tions by supply and demand ; thirdly, a mixed case, that of the 
articles which can be produced in indefinite quantity, but not at the 
same cost ; in which case the permanent value is determined by 
the greatest cost which it is necessary to incur in order to obtain 
the required supply. And lastly, we have found that money itself 
is a commodity of the third class ; that its value, in a state of 
freedom, is governed by the same laws as the values of other com- 
modities of its class ; and that prices, therefore, follow the same 
laws as values. 

From this it appears that demand and supply govern the fluctua- 
tions of values and prices in all cases, and the permanent values and 
prices of all things of which the supply is determined by any agency 
other than that of free competition : but that, under the regime of 
competition, things are, on the average, exchanged for each other 
at such values, and sold at such prices, as aflord equal expecta- 
tion of advantage to all classes of producers ; which can only be 
when things exchange for one another in the ratio of their cost of 
production. 

It is now, however, necessary to take notice of certain cases, to 
which, from their pecuhar nature, this law of exchange value is 
inappHcable. 

It sometimes happens that two different commodities have what 



570 BOOK III. CHAPTER- XVI. § 1 

may be termed a joint cost of production. | jThey are both products 
of the same operation, or set of operations, and the outlay is incurred 
for the sake of both together, not part for one and part for the other. 
The same outlay would have to be incurred for either of the two, if 
the other were not wanted or used at all. There are not a few in- 
stances of commodities thus associated in their production : for 
example, coke and coal-gas are both produced from the same 
material, and by the same operation. In a more partial sense, 
mutton and wool are an example : beef, hides, and tallow : calves 
and dairy produce: chickens and eggs. Cost of production can 
have nothing to do with deciding the value of the associated com- 
modities relatively to each other. It only decides their joint value. 
The gas and the coke together have to repay the expenses of their 
production, with the ordinary profit. To do this, a given quantity 
of gas, together with the coke which is the residuum of its manufac- 
ture, must exchange for other things in the ratio of their joint cost 
of production. But how much of the remuneration of the producer 
shall be derived from the coke, and how much from the gas, remains 
to be decided. Cost of production does not determine their prices, 
but the sum of their prices. A principle is wanting to apportion 
the expenses of production between the two. 
, , Since cost of production here fails us, we must revert to a law of 
U value anterior to cost of production, and more fundamental, the law 
11 of demand and supply. The law is, that the demand for a com- 
\( modity varies with its value, and that the value adjusts itself so that 
the demand shall be equal to the supply. This supplies the principle 
of repartition which we are in quest of. 

Suppose that a certain quantity of gas is produced and sold at a 
' certain price, and that the residuum of coke is offered at a price which, 
together with that of the gas, repays the expenses with the ordinary 
rate of profit. Suppose, too, that at the price put upon the gas and 
coke respectively, the whole of the gas finds an easy market, without 
either surplus or deficiency, but that purchasers cannot be found 
for all the coke corresponding to it. The coke will be offered at a 
lower price in order to force a market. But this lower price, to- 
gether with the price of the gas, will not be remunerating : the 
manufacture, as a whole, will not pay its expenses with the ordinary 
profit, and will not, on these terms, continue to be carried on. The 
gas, therefore, must be sold at a higher price, to make up for the 
deficiency on the coke. The demand consequently contracting, the 
production will be somewhat reduced ; and prices will become 



SOME PECULIAR CASES OF VALUE 571 

stationary when, by tlie joint effect of tlie rise of gas and the fall of 
coke, so much less of the first is sold, and so much more of the second, 
that there is now a market for all the coke which results from the 
existing extent of the gas manufacture. 

Or suppose the reverse case ; that more coke is wanted at the 
present prices, than can be suppHed by the operations required by 
the existing demand for gas. Coke, being now in deficiency, will 
rise in price. The whole operation will yield more than the usual 
rate of profit, and additional capital will be attracted to the manu- 
facture. The unsatisfied demand for coke will be supphed ; but this 
cannot be done without increasing the supply of gas too ; and as the 
existing demand was fully suppHed already, an increased quantity 
can only find a market by lowering the price. The result will be 
that the two together will yield the return required by their joint 
cost of production, but that more of this return than before will be 
furnished by the coke, and less by the gas. Equihbrium will be 
attained when the demand for each article fits so well with the 
demand for the other, that the quantity required of each is exactly 
as much as is generated in producing the quantity required of the 
other. If there is any surplus or deficiency on either side ; if there 
is a demand for coke, and not a demand for all the gas produced along 
with it, or vice versa ; the values and prices of the two things will so 
readjust themselves that both shall find a market. 

When, therefore, two or more commodities have a joint cost of 
production, their natural values relatively to each other are those 
which will create a demand for each, in the ratio of the quantities in 
which they are sent forth by the productive process. This theorem 
is not in itself of any great importance : but the illustration it affords 
of the law of demand, and of the mode in which, when cost of pro- 
duction fails to be appHcable, the other principle steps in to supply 
the vacancy, is worthy of particular attention, as we shall find in the 
next chapter but one that something very similar takes place in 
cases of much greater moment. 

§ 2. Another case of value which merits attention, is that of 
the different kinds of agricultural produce. This is rather a more 
complex question than the last, and requires that attention should 
be paid to a greater number of influencing circumstances. 

The case would present nothing peculiar, if different agricultural 
products were either grown indiscriminately and with equal advan- 
tage on the same soils, or wholly on different soils. The difficulty 



672 BOOR III. CHAPTER XVI. § 2 

arises from two things : first, tliat most soils are fitter for one kind 
of produce than another, without being absolutely imfit for any ; 
and secondly, the rotation of crops. 

For simplicity we will confine our supposition to two kinds of 
agricultural produce ; for instance, wheat and oats. If all soils 
were equally adapted for wheat and for oats, both would be 
grown indiscriminately on all soils^ and their relative cost of produc- 
tion, being the same everywhere, would govern their relative value 
If the same labour which grows three quarters of wheat on any given 
soil, would always grow on that soil five quarters of oats, the three 
and the five quarters would be of the same value. If, again, wheat 
and oats could not be grown on the same soil at all, the value of each 
would be determined by its peculiar cost of production on the least 
favourable of the soils adapted for it which the existing demand 
required a recourse to. The fact, however, is that both wheat and 
oats can be grown on almost any soil which is capable of producing 
either : but some soils, such as the stiff clays, are better adapted for 
wheat, while others (the Hght sandy soils) are more suitable for oats. 
There might be some soils which would yield, to the same quantity 
of labour, only four quarters of oats to three of wheat ; others 
perhaps less than three of wheat to five quarters of oats. Among 
these diversities, what determines the relative value of the two 
things ? 

It is evident that each grain will be cultivated in preference 
on the soils which are better adapted for it than for the other ; and 
if the demand is supplied from these alone, the values of the two 
grains will have no reference to one another. But when the demand 
for both is such as to require that each should be grown not only on 
the soils peculiarly fitted for it, but on the medium soils which, 
without being specifically ^adapted to either, are about equally suited 
for both, the cost of production on those medium soils will determine 
the relative value of the two grains ; while the rent of the soils 
specifically adapted to each will be regulated by their productive 
power, considered with reference to that one alone to which they are 
pecuharly apphcable. Thus far the question presents no difficulty 
to any one to whom the general principles of value are famihar. 

It may happen, however, that the demand for one of the two, 
as for example wheat, may so outstrip the demand for the other, as 
not only to occupy the soils specially suited for wheat, but to engross 
entirely those equally suitable to both, and even encroach upon those 
which are better adapted to oats. To create an inducement for this 



SOME PECULIAR CASES OF VALUE WJT 

unequal apportionment of the cultivation, wheat must be relatively 
dearer, anl oats cheaper, than according to the cost of their produc- 
tion on the medium land. Their relative value must be in proportion 
to the cost on that quality of land, whatever it may be, on which the 
comparative demand for the two grains requires that both of them 
should be grown. If, from the state of the demand, the two cultiva- 
tions meet on land more favourable to one than to the other, that 
one will be cheaper and the other dearer, in relation to each other 
and to things in general, than if the proportional demand were as we 
at first supposed. 

Here, then, we obtain a fresh illustration, in a somewhat different 
manner, of the operation of demand, not as an occasional disturber 
of value, but as a permanent regulator of it, conjoined with, or 
supplementary to, cost of production. 

The case of rotation of crops does not require separate analysis, 
being a case of joint cost of production, like that of gas and coke. 
If it were the practice to grow white and green crops on all lands in 
alternate years, the one being necessary as much for the sake of the 
other as for its own sake ; the farmer would derive his remuneration 
for two years' expenses from one white and one green crop, and the 
prices of the two would so adjust themselves as to create a demand 
which would carry off an equal breadth of white and of green crops. 

There would be Httle difficulty in finding other anomalous 
cases of value, which it might be a useful exercise to resolve : but it 
is neither desirable nor possible, in a work hke the present, to enter 
more into details than is necessary for the elucidation of principles. 
I now therefore proceed to the only part of the general theory of 
exchange which has not yet been touched upon, that of International 
Exchanges, or, to speak more generally, exchanges between distant 
places. 



CHAPTER XVII 

ON INTERNATIONAL TRADE 

§ 1. The causes wtich occasion a commodity to be brought 
from a distance, instead of being produced, as convenience would 
seem to dictate, as near as possible to tbe market where it is to be 
sold for consumption, are usually conceived in a rather superficial 
manner. Some things it is physically impossible to produce, except 
in particular circumstances of heat, soil, water, or atmosphere. 
But there are many things which, though they could be produced at 
home without difficulty, and in any quantity, are yet imported from 
a distance. The explanation which would be popularly given of 
this would be, that it is cheaper to import than to produce them : 
and this is the true reason. But this reason itself requires that a 
reason be given for it. Of two things produced in the same place, 
if one is cheaper than the other, the reason is that it can be produced 
with less labour and capital, or, in a word, at less cost. Is this also 
the reason as between things produced in different places ? Are 
things never imported but from places where they can be produced 
with less labour (or less of the other element of cost, time) than in the 
place to which they are brought ? Does the law, that permanent 
value is proportioned to cost of production, hold good between 
commodities produced in distant places, as it does between those 
produced in adjacent places ? 

We shall find that it does not. A thing may sometimes be sold 
cheapest, by being produced in some other place than that at which 
it can be produced with the smallest amount of labour and abstin- 
ence. England might import corn from Poland and pay for it in 
cloth, even though England had a decided advantage over Poland 
in the production of both the one and the other. England might 
send cottons to Portugal in exchange for wine, although Portugal 
might be able to produce cottons with a less amount of labour and 
capital than England could. 



INTERNATIONAL TRADE 675 

This could not happen between adjacent places. If the north 
bank of the Thames possessed an advantage over the south bank 
in the production of shoes, no shoes would be produced on the south 
side ; the shoemakers would remove themselves and their capitals 
to the north bank, or would have estabhshed themselves there 
originally ; for being competitors in the same market with those on 
the north side, they could not compensate themselves for their dis- 
advantage at the expense of the consumer : the amount of it would 
fall entirely on their profits ; and they would not long content them- 
selves with a smaller profit, when, by simply crossing a river, they 
could increase it. But between distant places, and especially 
between different countries, profits may continue different ; because 
persons do not usually remove themselves or their capitals to a 
distant place without a very strong motive. If capital removed to 
remote parts of the world as readily, and for as small an inducement, 
as it moves to another quarter of the same town ; if people would 
transport their manufactories to America or China whenever they 
could save a small percentage in their expenses by it ; profits would 
be ahke (or equivalent) all over the world, and all things would be 
produced in the places where the same labour and capital would 
produce them in greatest quantity and of best quahty. A tendency 
may, even now, be observed towards such a state of things ; capital 
is becoming more and more cosmopohtan ; there is so much greater 
similarity of manners and institutions than formerly, and so much 
less alienation of feeHng, among the more civiHzed countries, that 
both population and capital now move from one of those countries 
to another on much less temptation than heretofore. But there are 
still extraordinary differences, both of wages and of profits, between 
different parts of the world. It needs but a small motive to trans- 
plant capital, or even persons, from "Warwickshire to Yorkshire ; 
but a much greater to make them remove to India, the colonies, or 
Ireland. To France, Germany, or Switzerland, capital moves perhaps 
almost as readily as to the colonies ; the differences of language and 
government being scarcely so great a hindrance as climate and 
distance. To countries still barbarous, or, like Russia or Turkey, 
only beginning to be civiHzed, capital will not migrate, unless under 
the inducement of a very great extra profit. 

Between all distant places therefore in some degree, but especially 
between different countries (whether under the same supreme 
government or not), there may exist great inequalities in the return 
to labour and capital, without causing them to move from one place 



576 BOOK III. CHAPTER XVII. § 2 

to tlie other in such quantity as to level those inequalities. The 
capital belonging to a country will, to a great extent, remain in the 
country, even if there be no mode of employing it in which it would 
not be more productive elsewhere. Yet even a country thus cir- 
cumstanced might, and probably would, carry on trade with other 
countries. It would export articles of some sort, even to places 
which could make them with less labour than itself ; because those 
countries, supposing them to have an advantage over it in all pro- 
ductions, would have a greater advantage in some things than in 
others, and would find it their interest to import the articles in which 
their advantage was smallest, that they might employ more of their 
labour and capital on those in which it was greatest. 

§ 2. As I have said elsewhere * after Eicardo (the thinker who 
has done most towards clearing up this subject)! " it is not a difference 
in the absolute cost of production, which determines the interchange, 
but a difference in the com'paratwe cost. It may be to our advantage 
to procure iron from Sweden in exchange for cottons, even although 
the mines of England as weU as her manufactories should be more 
productive than those of Sweden ; for if we have an advantage of 
one-half in cottons, and only an advantage of a quarter in iron, and 
could sell our cottons to Sweden at the price which Sweden must 
pay for them if she produced them herself, we should obtain our iron 
with an advantage of one-half as well as our cottons. We may often, 
by trading with foreigners, obtain their commodities at a smallei 
expense of labour and capital than they cost to the foreigners them- 
selves. The bargain is still advantageous to the foreigner, because 
the commodity which he receives in exchange, though it has cost ua 
less, would have cost him more." 

To illustrate the cases in which interchange of commodities 
will not, and those in which it will, take place between two countries, 
Mr. [James] Mill, in his Elements of Political Economy,^ makes the 
supposition that Poland has an advantage over England in the pro- 
duction both of cloth and of com. He first supposed the advantage 

* Essays on some Unsettled Questions of Political Economy, Essay I. 

t [1862] I at one time believed Mr. Ricardo to have been the sole author of 
the doctrine now universally received by political economists, on the nature and 
measure of the benefit which a country derives from foreign trade. But Colonel 
Torrens, by the republication of one of his early writings, The Economists 
Refuted, has established at least a joint claim with Mr. Ricardo to the origination 
of the doctrine, and an exclusive one to its earliest publication, 

% Thkd ed. p. 120. 



IJNTJlJKJNAiiUiNAL. TKAUJi 07/ 

to be of equal amount in both commodities ; the cloth and the corn, 
each of which required 100 days' labour in Poland, requiring each 
150 days' labour in England. " It would follow, that the cloth of 
150 days' labour in England, if sent to Poland, would be equal to the 
cloth of 100 days' labour in Poland ; if exchanged for corn, therefore, 
it would exchange for the corn of only 100 days' labour. But the 
corn of 100 days' labour in Poland was supposed to be the same 
quantity with that of 150 days' labour in England. With 150 days' 
labour in cloth, therefore, England would only get as much corn in 
Poland, as she could raise with 150 days' labour at home ; and she 
would, in importing it, have the cost of carriage besides. In these 
circumstances no exchange would take place." In this case the 
comparative cost of the two articles in England and in Poland were 
supposed to be the same, though the absolute costs were different ; 
on which supposition we see that there would be no labour saved to 
either country by confining its industry to one of the two produc- 
tions and importing the other. 

It is otherwise when the comparative, and not merely the absolute 
costs of the two articles are different in the two countries. "If," 
continues the same author, " while the cloth produced with 100 days' 
labour in Poland was produced with 150 days' labour in England, 
the corn which was produced in Poland with 100 days' labour could 
not be produced in England with less than 200 days' labour ; an 
adequate motive to exchange would immediately arise. With a 
quantity of cloth which England produced with 150 days' labour, 
she would be able to purchase as much corn in Poland as was there 
produced with 100 days' labour ; but the quantity which was there 
produced with 100 days' labour, would be as great as the quantity 
produced in England with 200 days' labour." By importing com, 
therefore, from Poland, and paying for it with cloth, England would 
obtain for 150 days' labour what would otherwise cost her 200 ; 
being a saving of 50 days' labour on each repetition of the trans- 
action : and not merely a saving to England, but a saving absolutely ; 
for it is not obtained at the expense of Poland, who, with corn that 
costs her 100 days' labour, has purchased cloth which, if produced at 
home, would have cost her the same. Poland, therefore, on this 
supposition, loses nothing ; but also she derives no advantage from 
the trade, the imported cloth costing her as much as if it were made 
at home. To enable Poland to gain anything by the interchange, 
something must be abated from the gain of England : the corn pro- 
duced in Poland by 100 days' labour must be able to purchase from 



578 BOOK III. CHAPTER XVII. § 4 

England more clotli tlian Poland could produce by that amount of 
labour ; more therefore than England could produce by 150 days' 
labour, England thus obtaining the corn which would have cost her 
200 days, at a cost exceeding 150, though short of 200. England 
therefore no longer gains the whole of the labour which is saved 
to the two jointly by trading with one another. 

§ 3. From this exposition we perceive in what consists the 
benefit of international exchange, or, in other words, foreign com- 
merce. Setting aside its enabhng countries to obtain commodities 
which they could not themselves produce at all ; its advantage 
consists in a more efficient employment of the productive forces of 
the world. If two countries which trade together attempted, as 
far as was physically possible, to produce for themselves what they 
now import from one another, the labour and capital of the two 
countries would not be so productive, the two together would not 
rjbtain from their industry so great a quantity of commodities, as 
when each employs itself in producing, both for itself and for the 
other, the things in which its labour is relatively most efficient. 
The addition thus made to the produce of the two combined, con- 
stitutes the advantage of the trade. It is possible that one of the 
two countries may be altogether inferior to the other in productive 
capacities, and that its labour and capital could be employed to 
greatest advantage by being removed bodily to the other. The 
labour and capital which have been sunk in rendering HoUand 
habitable, would have produced a much greater return if transported 
to America or Ireland. The produce of the whole world would be 
greater, or the labour less, than it is, if everything were produced 
where there is the greatest absolute facility for its production. But 
nations do not, at least in modern times, emigrate en masse ; and 
while the labour and capital of a country remain in the country, 
they are most beneficially employed in producing, for foreign markets 
as well as for its own, the things in which it Hes under the least 
disadvantage, if there be none in which it possesses an advantage 

§ 4. Before proceeding further, let us contrast this view of the 
benefits of international commerce with other theories which have 
prevailed, and which to a certain extent still prevail, on the same 
subject. 

According to the doctrine now stated, the only direct advantage 
of foreign commerce consists in the imports. A country obtains 



INTERNATIONAL THADfi 5^9 

things which it either could not have produced at all, or which it must 
have produced at a greater expense of capital and labour than the 
cost of the things which it exports to pay for them. It thus obtains 
a more ample supply of the commodities it wants, for the same labour 
and capital ; or the same supply, for less labour and capital, leaving 
the surplus disposable to produce other things. The vulgar theory • 
disregards this benefit, and deems the advantage of commerce \ 
to reside in the exports : as if not what a country obtains, but what I 
it parts with, by its foreign trade, was supposed to constitute the gain 
to it. An extended market for its produce — an abundant consump- 
tion for its goods — a vent for its surplus — are the phrases by which 
it has been customary to designate the uses and recommendations 
of commerce with foreign countries. This notion is intelligible, when 
we consider that the authors and leaders of opinion on mercantile 
questions have always hitherto been the selling class. It is in truth 
a surviving relic of the Mercantile Theory, according to which, 
money being the only wealth, selling, or, in other words, exchanging 
goods for money, was (to countries without mines of their own) 
the only way of growing rich — and importation of goods, that is to 
say, parting with money, was so much subtracted from the benefit. 

The notion that money alone is wealth has been long defunct, 
but it has left many of its progeny behind it ; and even its destroyer, 
Adam Smith, retained some opinions which it is impossible to trace 
to any other origin. Adam Smith's theory of the benefit of foreign 
trade was that it afforded an outlet for the surplus produce of a 
country, and enabled a portion of the capital of the country to 
replace itself with a profit. These expressions suggest ideas incon- 
sistent with a clear conception of the phenomena. The expression, 
surplus produce, seems to imply that a country is under some Mnd 
of necessity of producing the corn or cloth which it exports ; so that 
the portion which it does not itself consume, if not wanted and con- 
sumed elsewhere, would either be produced in sheer waste, or, if it 
were not produced, the corresponding portion of capital would remain 
idle, and the mass of productions in the country would be diminished 
by so much. Either of these suppositions would be entirely erro- 
neous. The country produces an exportable article in excess of its 
own wants from no inherent necessity, but as the cheapest mode of 
supplying itself with other things. If prevented from exporting this 
surplus, it would cease to produce it, and would no longer import 
anything, being unable to give an equivalent ; but the labour and 
capital which had been employed in producing with a view to 



680 BOOK HI. CHAPTER XVII. § 4 

exportation, would find employment in producing those desii** 
able objects which were previously brought from abroad : or, if 
some of them could not be produced, in producing substitutes for 
them. These articles would of course be produced at a greater cost 
than that of the things with which they had previously been pur- 
chased from foreign countries. But the value and price of the 
articles would rise in proportion ; and the capital would just as 
much be replaced, with the ordinary profit from the returns, as it 
was when employed in producing for the foreign market. The only 
losers (after the temporary incojivenience of the change) would be 
the consumers of the heretofore imported articles ; who would be 
obhged either to do without them, consuming in Ueu of them some- 
thing which they did not hke as well, or to pay a higher price for them 
than before. 

There is much misconception in the common notion of what 
commerce does for a country. When commerce is spoken of as 
a source of national wealth, the imagination fixes itself upon the large 
fortunes acquired by merchants, rather than upon the saving of 
price to consumers. But the gains of merchants, when they enjoy 
no exclusive privilege, are no greater than the profits obtained by the 
employment of capital in the country itself. If it be said that the 
capital now employed in foreign trade could not find employment 
in supplying the home market, I might reply, that this is the fallacy 
of general over-production, discussed in a former chapter : but the 
thing is in this particular case too evident to require an appeal to 
any general theory. We not only see that the capital of the merchant 
would find employment, but we see what employment. There would 
be employment created equal to that which would be taken away. 
Exportation ceasing, importation to an equal value would cease also, 
and all that part of the income of the country which had been ex- 
pended in imported commodities, would be ready to expend itself 
on the same things produced at home, or on others instead of them. 
Commerce is virtually a mode of cheapening production ; and in all 
such cases the consumer is the person ultimately benefited ; the 
dealer, in the end, is sure to get his profit, whether the buyer obtains 
much or Httle for his money. This is said without prejudice to the 
effect (already touched upon, and to be hereafter fully discussed) 
which the cheapening of commodities may have in raising profits ; 
in the case when the commodity cheapened, being one of those 
consumed by labourers, enters into the cost of labour, by which the 
rate of profits is determined. 



INTERNATIONAL TRABE 681 

§ 5. Such, then, is the direct economical advantage of foreign 
trade. But there are, besides, indirect effects, which must be counted 
as benefits of a high order. One is, the tendency of every extension 
of the market to improve the processes of production. A country 
which produces for a larger market than its own, can introduce a 
more extended division of labour, can make greater use of machinery, 
and is more hkely to make inventions and improvements in the 
processes of production. Whatever causes a greater quantity of 
anything to be produced in the same place, tends to the general 
increase of the productive powers of the world.* There is another 
consideration, principally appUcable to an early stage of industrial 
advancement. A people may be in a quiescent, indolent, unculti- 
vated state, with all their tastes either fully satisfied or entirely 
undeveloped, and they may fail to put forth the whole of their pro- 
ductive energies for want of any sufiicient object of desire. The 
opening of a foreign trade, by making them acquainted with new 
objects, or tempting them by the easier acquisition of things which 
they had not previously thought attainable, sometimes works a sort 
of industrial revolution in a country whose resources were previously 
undeveloped for want of energy and ambition in the people : inducing 
those who were satisfied with scanty comforts and little work, to 
work harder for the gratification of their new tastes, and even to save, 
and accumulate capital, for the still more complete satisfaction of 
those tastes at a future time. 

But the economical advantages of commerce are surpassed in 
importance by those of its effects which are intellectual and moral. 
It is hardly possible to overrate the value, in the present low state 
of human improvement, of placing human beings in contact with 
persons dissimilar to themselves, and with modes of thought and 
action unHke those with which they are famihar. Commerce is 
now what war once was, the principal source of this contact. Com- 
mercial adventurers from more advanced countries have generally 
been the first civiKzers of barbarians. And commerce is the purpose 
of the far greater part of the communication which takes place 
between civihzed nations. Such communication has always been, 
and is pecuharly in the present age, one of the primary sources of 
progress. To human beings, who, as hitherto educated, can scarcely 
cultivate even a good quaHty without running it into a fault, it 
is indispensable to be perpetually comparing their own notions and 

* Vide supra, book i. chap. ix. § 1, 



682 BOOK III. CHAPTER XVII. § 5 

cuBtoms with the experience and example of persons in different 
circumstances from themselves : and there is no nation which does 
Qot need to borrow from others, not merely particular arts or 
practices, but essential points of character in which its own type 
is inferior. Finally, commerce first taught nations to see with good 
will the wealth and prosperity of one another. Before, the patriot, 
unless sufficiently advanced in culture to feel the world his country, 
wished all countries weak, poor, and ill-governed, but his own : 
he now sees in their wealth and progress a direct source of wealth 
and progress to his own country. It is commerce which is rapidly 
rendering war obsolete, by strengthening and multiplying the 
personal interests which are in natural opposition to it. And it 
may be said without exaggeration that the great extent and rapid 
increase of international trade, in being the principal guarantee 
of the peace of the world, is the great permanent security for the 
uninterrupted progress of the ideas, the institutions, and the 
character of the human race. 



VW^*^ _-.v----^_^ 





^^ 



CHAPTER XVIII 



OF INTERNATIONAL VALUES 



§ 1. The values of commodities produced at the same place, 
or in places sufficiently adjacent for capital to move freely between 
them — let us say, for simplicity, of commodities produced in the 
same country — depend (temporary fluctuations apart) upon their 
cost of production. But the value of a commodity brought from 
a distant place, especially from a foreign country, does not depend 
on its cost of production in the place from whence it comes. On 
what, then, does it depend ? The value of a thing in any place 
depends on the cost of its acquisition in that place ; which, in the 
case of an imported article, means the cost of production of the 
thing which is exported to pay for it. 

Since all trade is in reahty barter, money being a mere instrument 
for exchanging things against one another, we wiU, for simpHcity, 
begin by supposing the international trade to be in form, what it 
always is in reahty, an actual trucMng of one commodity against 
another. As far as we have hitherto proceeded, we have found 
aU the laws of interchange to be essentially the same, whether money 
is used or not ; money never governing, but always obeying, those 
general laws. 

If, then, England imports wine from Spain, giving for every 
pipe of wine a bale of cloth, the exchange value of a pipe of wine 
in England will not depend upon what the production of the wine 
may have cost in Spain, but upon what the production of the cloth 
has cost in England. Though the wine may have cost in Spain 
the equivalent of only ten days' labour, yet, if the cloth costs in 
England twenty days' labour, the wine, when brought to England, 
will exchange for the produce of twenty days' Enghsh labour, j)lus 
the cost of carriage ; including the usual profit on the importer's 
capital, during the time it is locked up, and withheld from othei 
employment. 



584 BOOK III. CHAPTER XVIII. § 2 

The value, then, in any country, of a foreign commodity, depends 
on the quantity of home produce which must be given to the foreign 
country in exchange for it. In other words, the values of foreign 
commodities depend on the terms of international exchange. What, 
then, do these depend upon ? What is it which, in the case sup- 
posed, causes a pipe of wine from Spain to be exchanged with 
England for exactly that quantity of cloth ? We have seen that 
it is not their cost of production. If the cloth and the wine were 
both made in Spain, they would exchange at their cost of production 
in Spain ; if they were both made in England, they would exchange 
at their cost of production in England : but all the cloth being 
made in England, and all the wine in Spain, they are in circumstances 
to which we have already determined that the law of cost of pro- 
duction is not applicable. We must accordingly, as we have done 
before in a similar embarrassment, fall back upon an antecedent 
law, that of supply and demand : and in this we shall again find 
the solution of our dij6S.culty. 

I have discussed this question in a separate Essay, already once 
referred to ; and a quotation of part of the exposition then given 
will be the best introduction to my present view of the subject. 
I must give notice that we are now in the region of the most compli- 
cated questions which political economy affords ; that the subject 
is one which cannot possibly be made elementary ; and that a more 
continuous effort of attention than has yet been required will be 
necessary to follow the series of deductions. The thread, however, 
which we are about to take in hand, is in itself very simple and 
manageable ; the only difficulty is in following it through the 
windings and entanglements of complex international transactions. 

§ 2. *' When the trade is estabhshed between the two countries, 
the two commodities will exchange for each other at the same rate 
of interchange in both countries — bating the cost of carriage, of 
which, for the present, it will be more convenient to omit the con- 
sideration. Supposing, therefore, for the sake of argument, that 
the carriage of the commodities from one country to the other 
could be effected without labour and without cost, no sooner would 
the trade be opened than the value of the two commodities, 
estimated in each other, would come to a level in both countries. 

" Suppose that 10 yards of broadcloth cost in England as much 
labour as 15 yards of Unen, and in Germany as much as 20." In 
common with most of my predecessors, I find it advisable, in 



iNTEiliSrATiONAL VALUES 585 

these intricate investigations, to give distinctness and fixity to the 
conception by numerical examples. These examples must some- 
times, as in the present case, be purely supposititious. I should 
have preferred real ones ; but all that is essential is, that the numbers 
should be such as admit of being easily followed through the subse- 
quent combinations into which they enter. 

This supposition then being made, it would be the interest of 
England to import linen from Germany, and of Germany to import 
cloth from England. " When each country produced both com- 
modities for itself, 10 yards of cloth exchanged for 15 yards of 
Hnen in England, and for 20 in Germany. They will now 
exchange for the same number of yards of linen in both. For what 
number ? If for 15 yards, England will be just as she was, and 
Germany will gain all. If for 20 yards, Germany will be as 
before, and England will derive the whole of the benefit. If for 
any number intermediate between 15 and 20, the advantage will 
be shared between the two countries. If, for example, 10 
yards of cloth exchange for 18 of Hnen, England will gain an 
advantage of 3 yards on every 15, Germany will save 2 out of 
every 20. The problem is, what are the causes which determine 
the proportion in which the cloth of England and the Hnen of 
Germany will exchange for each other. 

*' As exchange value, in this case as in every other, is proverbiaUy 
fluctuating, it does not matter what we suppose it to be when we 
begin : we shaU soon see whether there be any fixed point above 
which it oscillates, which it has a tendency always to approach to, 
and to remain at. Let us suppose, then, that by the effect of what 
Adam Smith calls the higgling of the market, 10 yards of cloth 
in both countries exchange for 17 yards of Hnen. 

" The demand for a commodity, that is, the quantity of it which 
can find a purchaser, varies, as we have before remarked, according 
N to the price. In Germany the price of 10 yards of cloth is now 
17 yards of Hnen, or whatever quantity of money is equivalent 
in Germany to 17 yards of linen. Now, that being the price, 
there is some particular number of yards of cloth, which will 
be in demand, or will find purchasers, at that price. There is 
some given quantity of cloth, more than which could not be disposed 
of at that price ; less than which, at that price, would not fully 
satisfy the demand. Let us suppose this quantity to be 1000 times 
10 yards. 

" Let us now turn our attention to England. There, the price 



686 BOOK III. CHAPTER XVIII. § 2 

of 17 yards of linen is 10 yards of cloth, or whatever quantity 
of money is equivalent in England to 10 yards of cloth. There is 
some particular number of yards of Hnen which, at that price, will 
exactly satisfy the demand, and no more. Let us suppose that 
this number is 1000 times 17 yards. 

"As 17 yards of linen are to 10 yards of cloth, so are 1000 
times 17 yards to 1000 times 10 yards. At the existing ex- 
change value, the Hnen which England requires will exactly pay 
for the quantity of cloth which, on the same terms of interchange, 
Germany requires. The demand on each side is precisely suflS.cient 
to carry ofi the supply on the other. The conditions required by 
the principle of demand and supply are fulfilled, and the two com- 
modities will continue to be interchanged, as we supposed them 
to be, in the ratio of 17 yards of hnen for 10 yards of cloth. 

" But our suppositions might have been different. Suppose that, 
at the assumed rate of interchange, England has been disposed to 
consume no greater quantity of Hnen than 800 times 17 yards : 
it is evident that, at the rate supposed, this would not have sufficed 
to pay for the 1000 times 10 yards of cloth which we have supposed 
Germany to require at the assumed value. Germany would be able 
to procure no more than 800 times 10 yards at that price. To 
procure the remaining 200, which she would have no means of doing 
but by bidding higher for them, she would offer more than 17 
yards of Hnen in exchange for 10 yards of cloth : let us suppose 
her to offer 18. At this price, perhaps, England would be 
inchned to purchase a greater quantity of hnen. She would 
consume, possibly, at that price, 900 times 18 yards. On the 
other hand, cloth having risen in price, the demand of Germany 
for it would probably have diminished. If, instead of 1000 times 
10 yards, she is now contented with 900 times 10 yards, these will 
exactly pay for the 900 times 18 yards of hnen which England 
is willing to take at the altered price : the demand on each side 
will again exactly suffice to take off the corresponding supply ; and 
10 yards for 18 will be the rate at which, in both countries, 
cloth will exchange for hnen. 

" The converse of all this would have happened, if, instead of 
800 times 17 yards, we had supposed that England, at the 
rate of 10 for 17, would have taken 1200 times 17 yards of 
hnen. In this case, it is England whose demand is not fully 
supplied ; it is England who, by bidding for more Hnen, will alter 
the rate of interchange to her own disadvantage ; and 10 yards 



INTERNATIONAL VALUES 687 

of clotli will fall, in both countries, below the value of 17 
yards of linen. By this fall of cloth, or, what is the same thing, 
this rise of linen, the demand of Germany for cloth will increase, 
and the demand of England for linen will diminish, till the rate of 
interchange has so adjusted itself that the cloth and the hnen will 
exactly pay for one another ; and when once this point is attained, 
values will remain without further alteration. 

" It may be considered, therefore, as estabHshed, that when two 
countries trade together in two commodities, the exchange value of 
these commodities relatively to each other will adjust itself to the 
incUnations and circumstances of the consumers on both sides, in 
such manner that the quantities required by each country, of the 
articles which it imports from its neighbour, shall be exactly sufficient 
to pay for one another. As the inchnations and circumstances of 
consumers cannot be reduced to any rule, so neither can the pro- 
portions in which the two commodities will be interchanged. We 
know that the Hmits, within which the variation is confined, are 
the ratio between their costs of production in the one country, 
and the ratio between their costs of production in the other. Ten 
yards of cloth cannot exchange for more than 20 yards of hnen, 
nor for less than 15. But they may exchange for any inter- 
mediate number. The ratios, therefore, in which the advantage of 
the trade may be divided between the two nations are various. 
The circumstances on which the proportionate share of each 
country more remotely depends, admit only of a very general 
indication. 

*' It is even possible to conceive an extreme case, in which the 
whole of the advantage resulting from the interchange would be 
reaped by one party, the other country gaining nothing at all. 
There is no absurdity in the hypothesis that, of some given com- 
modity, a certain quantity is all that is wanted at any price ; and 
that; when that quantity is obtained, no fall in the exchange value 
wo\dd induce other consumers to come forward, or those who are 
already supphed to take more. Let us suppose that this is the case 
in Germany with cloth. Before her trade with England commenced, 
when 10 yards of cloth cost her as much labour as 20 yards 
of linen, she nevertheless consumed as much cloth as she wanted 
under any circumstances, and, if she could obtain it at the rate of 
10 yar\ls of cloth for 15 of hnen, she would not consume more. 
Let this fixed quantity be 1000 times 10 yards. At the rate, 
l^ow^ver, of iiO for 20, England would want more linen than 



588 BOOK III. CHAPTER XVIII. § 3 

would be equivalent to this quantity of cloth. She would, conse- 
quently, offer a higher value for linen ; or, what is the same thing, 
she would offer her cloth at a cheaper rate. But, as by no lowering 
of the value could she prevail on Germany to take a greater quantity 
of cloth, there would be no limit to the rise of Hnen or fall of cloth, 
until the demand of England for linen was reduced by the rise of 
its value, to the quantity which 1000 times 10 yards of cloth would 
purchase. It might be, that to produce this diminution of the 
demand a less fall would not suffice than that which would make 
10 yards of cloth exchange for 15 of hnen. Germany would 
then gain the whole of the advantage, and England would be 
exactly as she was before the trade commenced. It would be for 
the interest, however, of Germany herself to keep her linen a httle 
below the value at which it could be produced in England, in order 
to keep herself from being supplanted by the home producer. 
England, therefore, would always benefit in some degree by the 
existence of the trade, though it might be a very trifling one." 

In this statement, I conceive, is contained the first elementary 
principle of International Values. I have, as is indispensable in such 
abstract and hypothetical cases, supposed the circumstances to be 
much less complex than they really are : in the first place, by sup- 
pressing the cost of carriage ; next, by supposing that there are only 
two countries trading together ; and lastly, that they trade only in 
two commodities. To render the exposition of the principle complete 
it is necessary to restore tjie various circumstances thus temporarily 
left out to simphfy the argument. Those who are accustomed to 
any kind of scientific investigation will probably see, without formal 
proof, that the introduction of these circumstances cannot alter the 
theory of the subject. Trade among any number of countries, and 
in any number of commodities, must take place on the same essential 
principles as trade between two countries and in two commodities. 
Introdacing a greater number of agents precisely similar cannot 
change the law of their action, no more than putting additional 
weights into the two scales of a balance alters the law of gravitation. 
It alters nothing but the numerical results. For more complete 
satisfaction, however, we will enter into the complex cases with 
the same particularity with which we have stated the simpler 
one. , 

§ 3. First, let us introduce the element of cost of calriage. 
The chief difference will then be, that the cloth and the Uneii , wiU 



INTERNATIONAL VALUES 589 

no longer exchange for each other at precisely the same rate in both 
countries. Linen, having to be carried to England, will be dearer 
there by its cost of carriage ; and cloth will be dearer in Germany 
by the cost of carrying it from England. Linen, estimated in cloth, 
will be dearer in England than in Germany, by the cost of carriage 
of both articles : and so will cloth in Germany, estimated in Hnen. 
Suppose that the cost of carriage of each is equivalent to one yard 
of Hnen ; and suppose that, if they could have been carried without 
cost, the terms of interchange would have been 10 yards of cloth 
for 17 of linen. It may seem at first that each country will pay 
its own cost of carriage ; that is, the carriage of the article it im- 
ports ; that in Germany 10 yards of cloth will exchange for 18 of 
linen, namely, the original 17, and 1 to cover the cost of carriage of 
the cloth ; while in England, 10 yards of cloth will only purchase 
16 of hnen, 1 yard being deducted for the cost of carriage of the linen. 
This, however, cannot be affirmed with certainty ; it will only be 
true, if the Hnen which the EngHsh consumers would take at the 
price of 10 for 16, exactly pays for the cloth which the German 
consumers would take at 10 for 18. The values, whatever they are, 
must estabHsh this equilibrium. No absolute rule, therefore, can 
be laid down for the division of the cost, no more than for the divi- 
sion of the advantage : and it does not follow that in whatever 
ratio the one is divided, the other will be divided in the same. It 
is impossible to say, if the cost of carriage could be annihilated, 
whether the producing or the importing country would be most 
benefited. This would depend on the play of international 
demand. 

Cost of carriage has one effect more. But for it, every com- 
modity would (if trade be supposed free) be either regularly im- 
ported or regularly exported. A country would make nothing for 
itself which it did not also make for other countries. But in conse- 
quence of cost of carriage there are many things, especially bulky 
articles, which every, or almost every, country produces within 
itself. After exporting the things in which it can employ itself most 
advantageously, and importing those in which it is under the 
greatest disadvantage, there are many lying between, of which the 
relative cost of production in that and in other countries differs so 
Httle, that the cost of carriage would absorb more than the whole 
saving in cost of production which would be obtained by importing 
one and exporting another. This is the case with numerous com- 
modities of common consumption ; including the coarser quaHties 



500 BOOK III, CHAPTER XVIII. § 4 

of many articles of food and manufacture, of whicli the finer kinds 
are the subject of extensive international traffic. 

§ 4. Let us now introduce a greater number of commodities 
than the two we have hitherto supposed. Let cloth and linen, 
however, be still the articles of which the comparative cost of pro- 
duction in England and in Germany differs the most ; so that, if they 
were confined to two commodities, these would be the two which it 
would be most their interest to exchange. We will now again omit 
cost of carriage, which, having been shown not to affect the essentials 
of the question, does but embarrass unnecessarily the statement of it. 
Let us suppose, then, that the demand of England for Hnen is either 
so much greater than that of Germany for cloth, or so much more 
extensible by cheapness, that if England had no commodity but 
cloth which Germany would take, the demand of England would 
force up the terms of interchange to 10 yards of cloth for only 16 of 
linen, so that England would gam only the difference between 15 and 
16, Germany the difference between 16 and 20. But let us now 
suppose that England has also another commodity, say iron, which 
is in demand in Germany, and that the quantity of iron which is 
of equal value in England with 10 yards of cloth, (let us call this 
quantity a hundredweight) will, if produced in Germany, cost as 
much labour as 18 yards of Hnen, so that if offered by England for 17 
it will undersell the German producer. In these circumstances, 
linen will not be forced up to the rate of 16 yards for 10 of 
cloth, but will stop, suppose at 17 ; for although, at that rate of 
interchange, Germany will not take enough cloth to pay for all the 
linen required by England, she will take iron for the remainder, and 
it is the same thing to England whether she gives a hundredweight 
of iron or 10 yards of cloth, both being made at the same cost. If 
we now superadd coals or cottons on the side of England, and wine, 
or corn, or timber, on the side of Germany, it will make no difference 
in the principle. The exports of each country must exactly pay for 
the imports ; meaning now the aggregate exports and imports, not 
those of particular commodities taken singly. The produce of fjfty 
days' English labour, whether in cloth, coals, iron, or any other 
exports, will exchange for the produce of forty, or fifty, or sixty days' 
German labour, in linen, wine, corn, or timber, according to the 
international demand. There is some proportion at which the 
demand of the two countries for each other's products will exactly 
correspond : so that the things supplied by England to Germany 



IKTKRNATiONAL VALUES 651 

will be completely paid for, and no more, by those supplied by 
Germany to England. This accordingly will be the ratio in which 
the produce of Enghsh and the produce of German labour will 
exchange for one another. 

If J therefore, it be asked what country draws to itself the greatest 
share of the advantage of any trade it carries on, the answer is, the 
country for whose productions there is in other countries the greatest 
demand, and a demand the most susceptible of increase from addi- 
tional cheapness. In so far as the productions of any country 
possess this property, the country obtains all foreign commodities 
at less cost. It gets its imports cheaper, the greater the intensity of 
the demand in foreign countries for its exports. It also gets its 
imports cheaper, the less the extent and intensity of its own demand 
for them. The market is cheapest to those whose demand is small. 
A country which desires few foreign productions, and only a Hmited 
quantity of them, while its own commodities are in great request in 
foreign countries, will obtain its Hmited imports at extremely small 
cost, that is, in exchange for the produce of a very small quantity of 
its labour and capital. 

Lastly, having introduced more than the original two commodities 
into the hypothesis, let us also introduce more than the original two 
countries. After the demand of England for the linen of Germany 
has raised the rate of interchange to 10 yards of cloth for 16 of Unen, 
suppose a trade opened between England and some other country 
which also exports linen. And let us suppose that, if England had 
no trade but with the third country, the play of international demand 
would enable her to obtain from it, for 10 yards of cloth or its equiva- 
lent, 17 yards of linen. She evidently would not go on buying linen 
from Germany at the former rate : Germany would be undersold, 
and must consent to give 17 yards, hke the other country. In this 
case, the circumstances of production and of demand in the third 
country are supposed to be in themselves more advantageous to 
England than the circumstances of Germany ; but this supposition 
is not necessary : we might suppose that if the trade with Germany 
did not exist, England would be obHged to give to the other country 
the same advantageous terms which she gives to Germany ; 10 yards 
of cloth for 16, or even less than 16, of Hnen. Even so, the opening 
of the third country makes a great difference in favour of England. 
There is now a double market for EngUsh export, while the demand 
of England for linen is only what it was before. This necessarily 
obtains for England more advantageous terms of interchange. The 



&92 BOOK III. CHAPTER XVllL § 4 

two countries, requiring mucli more of her produce than was required 
by either alone, must, in order to obtain it, force an increased demand 
for their exports, by offering them at a lower value. 

It deserves notice, that this effect in favour of England from the 
opening of another market for her exports, will equally be produced 
even though the country from which the demand comes should have 
nothing to sell which England is willing to take. Suppose that the 
third country, though requiring cloth or iron from England, pro- 
duces no hnen, nor any other article which is in demand there. She 
however produces exportable articles, or she would have no means 
of paying for imports : her exports, though not suitable to the 
Enghsh consumer, can find a market somewhere. As we are only 
supposing three countries, we must assume her to find this market 
in Germany, and to pay for what she imports from England by orders 
on her German customers. Germany, therefore, besides having to 
pay for her own imports, now owes a debt to England on account of 
the third country, and the means for both purposes must be derived 
from her exportable produce. She must therefore tender that 
produce to England on terms sufficiently favourable to force a demand 
equivalent to this double debt. Everything will take place precisely 
as if the third country had bought German produce with her own 
goods, and offered that produce to England in exchange for hers. 
There is an increased demand for English goods, for which German 
goods have to furnish the payment ; and this can only be done by 
forcing an increased demand for them in England, that is, by lowering 
their value. Thus an increase of demand for a country's exports in 
any foreign country enables her to obtain more cheaply even those 
imports which she procures from other quarters. And conversely, 
an increase of her own demand for any foreign commodity compels 
her, cceteris paribuSy to pay dearer for all foreign commodities. 

The law which we have now illustrated, may be appropriately 
named, the Equation of International Demand. It may be concisely 
stated as follows. The produce of a country exchanges for the pro- 
duce of other countries, at such values as are required in order that 
the whole of her exports may exactly pay for the whole of her imports. 
This law of International Values is but an extension of the more 
general law of Value, which we called the Equation of Supply and 
Demand.* We have seen that the value of a commodity always so 
adjusts itself as to bring the demand to the exact level of the supply. 

* Supra, book iii. cbap. ii, § 4. 



INTERNATIONAL VALUES 693 

But all trade, either between nations or individuals, is an interchange 
of commodities, in whicli the things that they respectively have to 
sell constitute also their means of purchase : the supply brought by 
the one constitutes his demand for what is brought by the other. 
So that supply and demand are but another expression for reciprocal 
demand : and to say that value will adjust itself so as to equalize 
demand with supply, is in fact to say that it will adjust itself so as 
to equalize the demand on one side with the demand on the other. 

§ 5. To trace the consequences of this law of International 
Values through their wide ramifications, would occupy more space 
than can be here devoted to such a purpose.^ But there is one of 
its applications which I will notice, as being in itself not unimportant, 
as bearing on the question which will occupy us in the next chapter, 
and especially as conducing to the more full and clear understanding 
of the law itself. 

We have seen that the value at which a country purchases a 
foreign commodity does not conform to the cost of production in 
the country from which the commodity comes. Suppose now a 
change in that cost of production ; an improvement, for example, 
in the process of manufacture. Will the benefit of the improvement 
be fully participated in by other countries ? Will the commodity 
be sold as much cheaper to foreigners, as it is produced cheaper 
at home ? This question, and the considerations which must be 
entered into in order to resolve it, are well adapted to try the worth 
of the theory. 

Let us first suppose, that the improvement is of a nature to create 
a new branch of export : to make foreigners resort to the country 
for a commodity which they had previously produced at home. 
On this supposition, the foreign demand for the productions of the 
country is increased ; which necessarily alters the international 
values to its advantage, and to the disadvantage of foreign countries, 
who, therefore, though they participate in the benefit of the new 
product, must purchase that benefit by paying for all the other 

^ [Here was omitted in the 3rd ed. (1852) the following passage of 
the original : " Several of those consequences were indicated in the Essay 
already quoted ; and others have been pointed out in the writings of Colonel 
Torrens, who appears to me substantially correct in his general view of 
the subject, and who has supported it with great closeness and consecutive- 
ness of: reasoning, though his conclusions are occasionally pushed much beyond 
what appear to me the proper limits of the principle on which they are 
grounded."] 



BOOK III. CHAPTER XVltl. § B 

productions of the country at a dearer rate than before. How much 
dearer, will depend on the degree necessary for re-estabhshing, under 
these new conditions, the Equation of International Demand. 
These consequences follow in a very obvious manner from the law 
of international values, and I shall not occupy space in illustrating 
them, but shall pass to the more frequent case, of an improvement 
which does not create a new article of export, but lowers the cost of 
production of something which the country already exported. 

It being advantageous, in discussions of this complicated nature, 
to employ definite numerical amounts, we shall return to our original 
example. Ten yards of cloth, if produced in Germany, would 
require the same amount of labour and capital as twenty yards of 
linen ; but by the play of international demand, they can be ob- 
tained from England for seventeen. Suppose now, that by a mecha- 
nical improvement made in Germany, and not capable of being 
transferred to England, the same quantity of labour and capital 
which produced twenty yards of linen, is enabled to produce thirty. 
Linen falls one-third in value in the German market, as compared 
with other commodities produced in Germany. Will it also fall 
one-third as compared with Enghsh cloth, thus giving to England, 
in common with Germany, the full benefit of the improvement ? 
Or (ought we not rather to say), since the cost to England of ob- 
taining linen was not regulated by the cost to Germany of producing 
it, and since England, accordingly, did not get the entire benefit 
even of the twenty yards which Germany could have given for ten 
yards of cloth, but only obtained seventeen — why should she now 
obtain more, merely because this theoretical limit is removed ten 
degrees further ofi ? 

It is evident that, in the outset, the improvement will lower the 
value of Knen in Germany, in relation to all other commodities in the 
German market, including, among the rest, even the imported 
commodity, cloth. If 10 yards of cloth previously exchanged for 
17 yards of Hnen, they will now exchange for half as much more, or 
25 J yards. But whether they will continue to do so will depend on 
the effect which this increased cheapness of linen produces on the 
international demand. The demand for linen in England could 
scarcely fail to be increased. But it might be increased either in 
proportion to the cheapness, or in a greater proportion than the 
cheapness, or in a less proportion. 

If the demand was increased in the same proportion with the 
cheapness, England would take as many times 25| yards of Hnen, as 



INTERNATIONAL VALUES 595 

the number of times 17 yards -whicli she took previously. She would 
expend in linen exactly as much of cloth, or of the equivalents of 
cloth, as much in short of the collective income of her people, as she 
did before. Germany, on her part, would probably require, at that 
rate of interchange, the same quantity of cloth as before, because it 
would in reahty cost her exactly as much ; 25J yards of Unen being 
now of the same value in her market as 17 yards were before. In 
this case, therefore, 10 yards of cloth for 25J of hnen is the rate of 
interchange which under these new conditions would restore the 
equation of international demand ; and England would obtain Hnen 
one-third cheaper than before, being the same advantage as was 
obtained by Germany. 

It might happen, howeyer, that this great cheapening of linen 
would increase the demand for it in England in a greater ratio than 
the increase of cheapness ; and that, if she before wanted 1000 times 
17 yards, she would now require more than 1000 times 25 J yards to 
satisfy her demand. If so, the equation of international demand 
cannot estabhsh itself at that rate of interchange ; to pay for the 
linen England must offer cloth on more advantageous terms ; say, 
for example, 10 yards for 21 of linen ; so that England will not have 
the full benefit of the improvement in the production of Unen, while 
Germany, in addition to that benefit, will also pay less for cloth. 
But again, it is possible that England might not desire to increase 
her consumption of Hnen in even so great a proportion as that of the 
increased cheapness ; she might not desire so great a quantity as 
1000 times 25 J yards : and in that case Germany must force a demand 
by offering more than 25^ yards of linen for 10 of cloth ; Hnen will 
be cheapened in England in a still greater degree than in Germany ; 
while Germany will obtain cloth on more unfavourable terms ; and 
at a higher exchange value than before. 

After what has already been said, it is not necessary to particu- 
larize the manner in which these results might be modified by intro- 
ducing into the hypothesis other countries and other commodities. 
There is a further circumstance by which they may also be modified. 
In the case supposed the consumers of Germany have had a part of 
their incomes set at Hberty by the increased cheapness of Hnen, which 
they may indeed expend in increasing their consumption of that 
article, but which they may Hkewise expend in other articles, and 
among others, in cloth or other imported commodities. This would 
be an additional element in the international demand, and would 
modify more or less the terms of interchange. 



596 BOOK III. CHAPTER XVIII. § 6 

Of the three possible varieties in the influence of cheapness on 
demand, which is the more probable — that the demand would be 
increased more than the cheapness, as much as the cheapness, or less 
than the cheapness ? This depends on the nature of the particular 
commodity, and on the tastes of purchasers. When the commodity 
is one in general request, and the fall of its price brings it within 
reach of a much larger class of incomes than before, the demand is 
often increased in a greater ratio than the fall of price, and a larger 
sum of money is on the whole expended in the article. Such was 
the case with coffee, when its price was lowered by successive 
reductions of taxation ; and such would probably be the case with 
sugar, wine, and a large class of commodities which, though not 
necessaries, are largely consumed, and in which many consumers 
indulge when the articles are cheap and economize when they are 
dear. But it more frequently happens that when a commodity falls 
in price, less money is spent in it than before : a greater quantity is 
consumed, but not so great a value. The consumer who saves money 
by the cheapness of the article, will be likely to expend part of the 
saving in increasing his consumption of other things : and unless the 
low price attracts a large class of new purchasers who were either 
not customers of the article at all, or only in small quantity and 
occasionally, a less aggregate sum will be expended on it. Speaking 
generally, therefore, the third of our three cases is the most probable : 
and an improvement in an exportable article is Ukely to be as bene- 
ficial (if not more beneficial) to foreign countries, as to the country 
where the article is produced. 

§ 6.^ Thus far had the theory of international values been 
carried in the first and second editions of this work. But intelligent 
criticisms (chiefly those of my friend Mr. William Thornton), and 
subsequent further investigation, have shown that the doctrine 
stated in the preceding pages, though correct as far as it goes, is not 
yet the complete theory of the subject matter. 

It has been shown that the exports and imports between the two 
countries (or, if we suppose more than two, between each country 
and the world) must in the aggregate pay for each other, and must 
therefore be exchanged for one another at such values as will be 
compatible with the equation of international demand. That this, 
however, does not furnish the complete law of the phenomenon, 
appears from the following consideration : that several different 
* [§§ 6-8 were inserted in the 3rd ed. (1852).] 



INTERNATIONAL VALUES 597 

rates of international value may all equally fulfil the conditions of 
this law. 

The supposition was, that England could produce 10 yards of 
cloth with the same labour as 15 of linen, and Germany with the 
same labour as 20 of Hnen ; that a trade was opened between the two 
countries ; that England thenceforth confined her production to 
cloth, and Germany to Unen ; and, that if 10 yards of cloth should 
thenceforth exchange for 17 of Hnen, England and Germany would 
exactly supply each other's demand : that, for instance, if England 
wanted at that price 17,000 yards of linen, Germany would want 
exactly the 10,000 yards of cloth, which, at that price, England 
would be required to give for the linen. Under these suppositions 
it appeared, that 10 cloth for 17 Hnen would be, in point of fact, the 
international values. 

But it is quite possible that some other rate, such as 10 cloth for 
18 linen, might also fulfil the conditions of the equation of inter- 
national demand. Suppose that, at this last rate, England would 
want more Hnen than at the rate of 10 for 17, but not in the ratio of 
the cheapness ; that she would not want the 18,000 which she could 
now buy with 10,000 yards of cloth, but would be content with 
17,500, for which she would pay (at the new rate of 10 for 18) 9722 
yards of cloth. Germany, again, having to pay dearer for cloth than 
when it could be bought at 10 for 17, would probably reduce her 
consumption to an amount below 10,000 yards, perhaps to the very 
same number, 9722. Under these conditions the Equation of Inter- 
national Demand would still exist. Thus, the rate of 10 for 17, and 
that of 10 for 18, would equaUy satisfy the Equation of Demand : and 
many other rates of interchange might satisfy it in Hke manner. It 
is conceivable that the conditions might be equally satisfied by every 
numerical rate which could be supposed. There is still therefore a 
portion of indeterminateness in the rate at which the international 
values would adjust themselves ; showing that the whole of the 
influencing circumstances cannot yet have been taken into account. 

§ 7. It will be found that, to supply this deficiency, we must 
take into consideration not only, as we have already done, the 
quantities demanded in each country of the imported commodities ; 
but also the extent of the means of supplying that demand which are 
set at Hberty in each country by the change in the direction of its 
industry. 

To illustrate this point it will be necessary to choose more 



-rrwrn SB 



598 BOOK III. CHAPTER XVIII. § 7 

convenient numbers than those which we have hitherto employed. 
Let it be supposed that in England 100 yards of cloth, previously 
to the trade, exchanged for 100 of hnen, but that in Germany 100 
of cloth exchanged for 200 of linen. When the trade was opened, 
England would supply cloth to Germany, Germany linen to England, 
at an exchange value which would depend partly on the element 
already discussed, viz. the comparative degree in which, in the two 
countries, increased cheapness operates in increasing the demand ; 
and partly on some other element not yet taken into account. 
In order to isolate this unknown element, it will be necessary to 
make some definite and invariable supposition in regard to the known 
element. Let us therefore assume, that the influence of cheapness 
on demand conforms to some simple law, common to both countries 
and to both commodities. As the simplest and most convenient, 
let us suppose that in both countries any given increase of cheapness 
produces an exactly proportional increase of consumption ; or, in 
other words, that the value expended in the commodity, the cost 
incurred for the sake of obtaining it, is always the same, whether 
that cost affords a greater or a smaller quantity of the commodity. 

Let us now suppose that England, previously to the trade, 
required a milHon of yards of hnen, which were worth, at the EngUsh 
cost of production, a million yards of cloth. By turning all the 
labour and capital with which that linen was produced to the pro- 
duction of cloth, she would produce for exportation a miUion yards 
of cloth. Suppose that this is the exact quantity which Germany 
is accustomed to consume. England can dispose of all this cloth 
in Germany at the German price ; she must consent indeed to take 
a little less until she has driven the German producer from the 
market, but as soon as this is effected, she can sell her million of 
cloth for two milhons of Hnen ; being the quantity that the German 
clothiers are enabled to make by transferring their whole labour and 
capital from cloth to Hnen. Thus England would gain the whole 
benefit of the trade, and Germany nothing. This would be perfectly 
consistent with the equation of international demand : since Eng- 
land (according to the hypothesis in the preceding paragraph) now 
requires two millions of linen (being able to get them at the same 
cost at which she previously obtained only one), while, the prices 
in Germany not being altered, Germany requires as before exactly 
a milHon of cloth, and can obtain it by employing the labour and 
capital set at Hberty from the production of cloth, in producing the 
two millions of Hnen required by England, 



INTERNATIONAL VALUES 599 

Thus far we have supposed that the additional cloth which 
England could make, by transferring to cloth the whole of the capital 
previously employed in making Hnen, was exactly sufficient to supply 
the whole of Germany's existing demand. But suppose next that 
it is more than sufficient. Suppose that while England could make 
with her liberated capital a million yards of cloth for exportation, 
the cloth which Germany had heretofore required was 800,000 yards 
only, equivalent at the German cost of production to 1,600,000 
yards of linen. England therefore could not dispose of a whole 
million of cloth in Germany at the German prices. Yet she wants, 
whether cheap or dear (by our supposition), as much linen as can be 
bought for a million of cloth : and since this can only be obtained 
from Germany, or by the more expensive process of production at 
home, the holders of the million of cloth will be forced by each other's 
competition to oSer it to Germany on any terms (short of the 
English cost of production) which will induce Germany to take the 
whole. What these terms would be, the supposition we have made 
enables us exactly to define. The 800,000 yards of cloth which 
Germany consumed, cost her the equivalent of 1,600,000 linen, 
and that invariable cost is what she is willing to expend in cloth, 
whether the quantity it obtains for her be more or less. England 
therefore, to induce Germany to take a miUicn of cloth, must offer 
it for 1,600,000 of Hnen. The international values will thus be 100 
cloth for 160 linen, intermediate between the ratio of the costs of 
production in England, and that of the costs of production in 
Germany : and the two countries will divide the benefit of the trade, 
England gaining in . the aggregate 600,000 yards of linen, and 
Germany being richer by 200,000 additional yards of cloth. 

Let us now stretch the last supposition still farther, and suppose 
that the cloth previously consumed by Germany, was not only less 
than the million yards which England is enabled to furnish by 
discont'nuing her production of Hnen, but less in the full proportion 
of England's advantage in the production, that is, that Germany 
only required half a milHon. In 'this case, by ceasing altogether 
to produce cloth, Germany can add a milHon, but a milHon only, 
to her production of Hnen ; and this million, being the equivalent 
of what the half milHon previously cost her, is aU that she can be 
induced by any degree of cheapness to expend in cloth. England 
\\dU be forced by her own competition to give a whole m illion of 
cloth for this million of linen, just as she was forced in the preceding 
case to give it for 1,600,000. But England could have produced at 



m BOOK 111. CHAPTER XVIII. § 7 

the same cost a million yards of linen for herself. England therefore 
derives, in this case, no advantage from the international trade. 
Germany gains the whole ; obtaining a million of cloth instead of 
half a million, at what the half million previously cost her. Germany, 
in short, is, in this third case, exactly in the same situation as 
England was in the first case ; which may easily be verified by 
reversing the figures. 

As the general result of the three cases, it may be laid down as a 
theorem, that under the supposition we have made of a demand 
exactly in proportion to the cheapness, the law of international 
values will be as follows : — 

The whole of the cloth which England can make with the capital 
previously devoted to linen, wiU exchange for the whole of the linen 
which Germany can make with the capital previously devoted to 
cloth. 

Or, still more generally. 

The whole of the commodities which the two countries can 
respectively make for exportation, with the labour and capital 
thrown out of employment by importation, will exchange against 
one another. 

This law, and the three different possibihties arising from it in 
respect to the division of the advantage, may be conveniently 
generahzed by means of algebraical symbols, as follows :— 

Let the quantity of cloth which England can make with the 
labour and capital withdrawn from the production of linen, be = n. 

Let the cloth previously required by Germany (at the German 
cost of production) be = m. 

Then n of cloth will always exchange for exactly 2m of linen. 

Consequently iin== m, the whole advantage will be on the side 
of England. 

lin = 2m, the whole advantage will be on the side of Germany. 

If n be greater than m, but less than 2m, the two countries 
will share the advantage ; England getting 2m of linen where she 
before got only n ; Germany getting n of cloth where she before 
got only m. 

It is almost superfluous to observe that the figure 2 stands where 
it does only because it is the figure which expresses the advantage 
of Germany over England in linen as estimated in cloth, and 
(what is the same thing) of England over Germany in cloth as esti- 
mated in linen. If we had supposed that in Germany, before the 
trade, 100 of cloth exchanged for 1000 instead of 200 of linen, 



INTERNATIONAL VALUES 601 

then n (after the trade commenced) would have exchanged for 10m 
instead of 2m. If instead of 1000 or 200 we had supposed only 
150, n would have exchanged for only fm. If (in fine) the cost value 
of cloth (as estimated in linen) in Germany exceeds the cost value 
similarly estimated in England, in the ratio of p to q, then will n, 

after the opening of the trade, exchange for - m.* 

§ 8. We have now arrived at what seems a law of International 
Values of great simplicity and generality. But we have done so by 
setting out from a purely arbitrary hypothesis respecting the relation 
between demand and cheapness. We have assumed their relation 
to be fixed, though it is essentially variable. We have supposed that 
every increase of cheapness produces an exactly proportional exten- 
sion of demand ; in other words, that the same invariable value 
is laid out in a commodity whether it be cheap or dear ; and the 

* It may be asked, why we have supposed the number n to have as its 
extreme limits, m and 2m (or ~m) ? why may not n be less than m, or greater 

than 2m ; and if so, what will be the result ? 

This we shall now examine ; and, when we do so, it will appear that n is 
always, practically speaking, confined within these limits. 

Suppose, for example, that n is less than m ; or, reverting to our former 
figures, that the million yards of cloth, which England can make, will not satisfy 
the whole of Germany's pre-existing demand ; that demand being (let us sup- 
pose) for 1,200,000 yards. It would then, at first sight, appear that England 
would supply Germany with cloth up to the extent of a million ; that Germany 
would continue to supply herself with the remaining 200,000 by home produc- 
tion : that this portion of the supply would regulate the price of the whole ; 
that England therefore would be able permanently to sell her million of cloth at 
the German cost of production (viz. for two millions of linen) and would gain 
the whole advantage of the trade, Germany being no better off than before. 

That such, however, would not be the practical result, will soon be evident. 
The residuary demand of Germany for 200,000 yards of cloth furnishes a 
resource to England for purposes of foreign trade of which it is still her interest 
to avail herself ; and though she has no more labour and capital which she can 
withdraw from linen for the production of this extra quantity of cloth, there 
must be some other commodities in which Germany has a relative advantage 
over her (though perhaps not so great as in Hnen) : these she will now import, 
instead of producing, and the labour and capital formerly employed in pro- 
ducing them will be transferred to cloth, until the required amount is made up. 
If this transfer just makes up the 200,000, and no more, this augmented n will 
now be equal to m ; England will sell the whole 1,200,000 at the German values : 
and will still gain the whole advantage of the trade. But if the transfer makes 
up more than the 200,000, England will have more cloth than 1,200,000 yards 
to offer ; n will become greater than m, and England must part with enough of 
the advantage to induce Germany to take the surplus. Thus the case, which 
seemed at first sight to be beyond the limits, is transformed practically into a 
case either coinciding with one of the limits or between them. And so with 
every other cose which can be supposec? 



602 BOOK III. CHAPTER XVIII. § 8 

law whicli we liave investigated holds good only on this hypothesis, 
or some other practically equivalent to it. Let us now, therefore, 
combine the two variable elements of the question, the variations 
of each of which we have considered separately. Let us suppose the 
relation between demand and cheapness to vary, and to become such 
as would prevent the rule of interchange laid down in the last theorem 
from satisfying the conditions of the Equation of International 
Demand. Let it be supposed, for instance, that the demand of 
England for linen is exactly proportional to the cheapness, but that 
of Germany for cloth, not proportional. To revert to the second of 
our three cases, the case in which England by discontinuing the 
production of linen could produce for exportation a million yards of 
cloth, and Germany by ceasing to produce cloth could produce an 
additional 1,600,000 yards of Hnen. If the one of these quantities 
exactly exchanged for the other, the demand of England would on 
our present supposition be exactly satisfied, for she requires aU the 
linen which can be got for a million yards of cloth : but Germany 
perhaps, though she required 800,000 cloth at a cost equivalent 
to 1,600,000 linen, yet when she can get a million of cloth at the same 
cost, may not require the whole million ; or may require more than 
a milHon. First, let her not require so much ; but only as much as 
she can now buy for 1 ,500,000 linen. England will still oSer a million 
for these 1,500,000 ; but even this may not induce Germany to take 
so much as a million ; and if England continues to expend exactly the 
same aggregate cost on linen whatever be the price, she will have to 
submit to take for her million of cloth any quantity of linen (not less 
than a milUon) which may be requisite to induce Germany to take 
a milHon of cloth. Suppose this to be 1,400,000 yards. England 
has now reaped from the trade a gain not of 600,000 but only of 
400,000 yards ; while Germany, besides having obtained an extra 
200,000 yards of cloth^ has obtained it with only seven-eighths of 
the labour and capital which she previously expended in supplying 
herself with cloth, and may expend the remainder in increasing 
her own consumption of linen, or of any other commodity. 

Suppose on the contrary that Germany, at the rate of a million 
cloth for 1,600,000 linen, requires more than a million yards of 
cloth. England having only a million which she can give without 
trenching upon the quantity she previously reserved for herself, 
Germany must bid for the extra cloth at a higher rate than 160 for 
100, until she reaches a rate (say 170 for 100) which will either bring 
down her own demand for cloth to the limit of a million, or else 



INTERNATIONAL VALUES 603 

tempt England to part with some of tiie cloth she previously 
consumed at home. 

Let us next suppose that the proportionality of demand to 
cheapness, instead of holding good in one country but not in the other, 
does not hold good in either country, and that the deviation is of the 
same kind in both ; that, for instance, neither of the two increases 
its demand in a degree equivalent to the increase of cheapness. 
On this supposition, at the rate of one milHon cloth for 1,600,000 
linen, England will not want so much as 1,600,000 Knen, nor Germany 
so much as a million cloth : and if they fall short of that amount in 
exactly the same degree : if England only wants linen to the amount 
of nine-tenths of 1,600,000 (1,440,000), and Germany only nine 
hundred thousand of cloth, the interchange will continue to take 
place at the same rate. And so if England wants a tenth more than 
1,600,000, and Germany a tenth more than a million. This coinci- 
dence (which, it is to be observed, supposes demand to extend 
cheapness in a corresponding, but not in an equal degree *) evidently 
could not exist unless by mere accident : and, in any other case, the 
equation of international demand would require a different adjust- 
ment of international values. 

The only general law, then, which can be laid down, is this. 
The values at which a country exchanges its produce with foreign 
countries depend on two things : first, on the amount and exten- 
sibiHty of their demand for its commodities, compared with its de- 
mand for theirs ; and secondly, on the capital which it has to spare 
from the production of domestic commodities for its own consump- 
tion. The more the foreign demand for its commodities exceeds its 
demand for foreign commodities, and the less capital it can spare 
to produce for foreign markets, compared with what foreigners 
spare to produce for its markets, the more favourable to it will be 
the terms of interchange : that is, the more it will obtain of foreign 
commodities in return for a given quantity of its own. 

But these two influencing circumstances are in reality reducible 
to one : for the capital which a country has to spare from the 
production of domestic commodities for its own use is in proportion 
to its own demand for foreign commodities : whatever proportion 
of its collective income it expends in purchases from abroad, that 

* The increase of demand from 800,000 to 900,000, and that from a milKon 
to 1,440,000, are neither equal in themselves, nor bear an equal proportion to 
the increase of cheapness. Germany's demand for cloth has increased one- 
eighth, while the cheapness is increased one-fourth. England's demand for 
linen is increased 44 per cent, while the cheapness is increased 60 per cent. 



604 BOOK ill. CHAPTER XVIII. § 9 

same proportion of its capital is left without a home market for its 
productions. The new element, therefore, which for the sake of 
scientific correctness we have introduced into the theory of inter- 
national values, does not seem to make any very material difference 
in the practical result. It still appears, that the countries which 
carry on their foreign trade on the most advantageous terms, are 
those whose commodities are most in demand by foreign countries, 
and which have themselves the least demand for foreign commodities. 
From which, among other consequences, it follows, that the richest 
countries, cceteris paribus, gain the least by a given amount of foreign 
commerce : since, having a greater demand for commodities gener- 
ally, they are Kkely to have a greater demand for foreign com- 
modities, and thus modify the terms of interchange to their own 
disadvantage. Their aggregate gains by foreign trade, doubtless, 
are generally greater than those of poorer countries, since they carry 
on a greater amount of such trade, and gain the benefit of cheapness 
on a larger consumption : but their gain is less on each individual 
article consumed. 

§ 9. We now pass to another essential part of the theory of 
the subject. There are two senses in which a country obtains com- 
modities cheaper by foreign trade ; in the sense of Value, and in the 
sense of Cost. It gets them cheaper in the first sense, by their falling 
in value relatively to other things : the same quantity of them 
exchanging, in the country, for a smaller quantity than before 
of the other produce of the country. To revert to our original 
figures ; in England, all consumers of linen obtained, after the trade 
was opened, 17 or some greater number of yards for the same 
quantity of all other things for which they before obtained only 15. 
The degree of cheapness, in this sense of the term, depends on the 
laws of International Demand, so copiously illustrated in the 
preceding sections. But in the other sense, that of Cost, a country 
gets a commodity cheaper when it obtains a greater quantity of the 
commodity with the same expenditure of labour and capital. In 
this sense of the term, cheapness in a great measure depends upon a 
cause of a different nature : a country gets its imports cheaper, 
in proportion to the general productiveness of its domestic industry ; 
to the general efficiency of its labour. The labour of one country 
may be, as a whole, much more efficient than that of another ; aU 
or most of the commodities capable of being produced in both may 
be produced in one at less absolute cost than in the other ; which, 



INTERNATIONAL VALUES 606 

as we have seen, will not necessarily prevent the two countries from 
exchanging commodities. The things which the more favoured 
country will import from others, are of course those in which it is 
least superior ; but by importing them it acquires, even in those 
commodities, the same advantage which it possesses in the articles 
it gives in exchange for them. Thus the countries which obtain their 
own productions at least cost, also get their imports at least cost. 

This will be made still more obvious if we suppose two competing 
countries. England sends cloth to Germany, and gives 10 yards of it 
for 17 yards of Hnen, or for something else which in Germany is the 
equivalent of those 17 yards. Another country, as for example 
France, does the same. The one giving 10 yards of cloth for a certain 
quantity of German commodities, so must the other : if, therefore, 
in England, these 10 yards are produced by only half as much labour 
as that by which they are produced in France, the Hnen or other 
commodities of Germany will cost to England only half the amount of 
labour which they will cost to France. England would thus obtain 
her imports at less cost than France, in the ratio of the greater 
efficiency of her labour in the production of cloth : which might be 
taken, in the case supposed, as an approximate estimate of the 
efficiency of her labour generally ; since France, as well as England, 
by selecting cloth as her article of export, would have shown that with 
her also it was the commodity in which labour was relatively the 
most efficient. It follows, therefore, that every country gets its 
imports at less cost, in proportion to the general efficiency of its 
labour. 

This proposition was first clearly seen and expounded by Mr. 
Senior,* but only as appHcable to the importation of the precious 
metals. I think it important to point out that the proposition 
holds equally true of all other imported commodities ; and further, 
that it is only a portion of the truth. For,_ in the case supposed, 
the cost to England of the linen which she pays for with ten yards of 
cloth, does not depend solely upon the cost to herself of ten yards of 
cloth, but partly also upon how many yards of Hnen she obtains in 
exchange for them. What her imports cost to her is a function of 
two variables ; the quantity of her own commodities which she gives 
for them, and the cost of those commodities. Of these, the last alone 
depends on the efficiency of her labour : the first depends on the law 
of international values ; that is, on the intensity and extensibiHty 

• Three Ltcturoa on the Cost of Obtaining Monet/* 



^U6~=^^^ BOOK III. CHAPTER XVIII. § 9 

of the foreign demand for her commodities, compared with h0| 
demand for foreign commodities. 

In the case just now supposed, of a competition between England 
and France, the state of international values affected both competi- 
tors ahke, since they were supposed to trade with the same country, 
and to export and import the same commodities. The difference, 
therefore, in what their imports cost them, depended solely on the 
other cause, the unequal efficiency of their labour. They gave the 
same quantities ; the difference could only be in the cost of produc- 
tion. But if England traded to Germany with cloth, and France with 
iron, the comparative demand in Germany for those two commodi- 
ties would bear a share in determining the comparative cost, in 
labour and capital, with which England and France would obtain 
German products. If iron were more in demand in Germany than 
cloth, France would recover, through that channel, part of her 
disadvantage ; if less, her disadvantage would be increased. The 
efficiency, therefore, of a country's labour, is not the only thing which 
determines even the cost at which that country obtains imported 
commodities — while it has no share whatever in determining either 
their exchange value, or, as we shall presently see, their price,^ 

* [See Appendix V. International Values.] 



CHAPTER XIX 

ON MONEY, CONSIDERED AS AN IMPORTED COMMODITY 

§ 1. The degree of progress which we have now made in the 
theory of Foreign Trade, puts it in our power to supply what was 
previously deficient in our view of the theory of Money ; and this, 
when completed, will in its turn enable us to conclude the subject of 
Foreign Trade. 

Money, or the material of which it is composed, is, in Great 
Britain, and in most other countries, a foreign commodity. Its 
value and distribution must therefore be regulated, not by the law 
of value which obtains in adjacent places, but by that which is 
applicable to imported commodities — the law of International 
Values. 

In the discussion into which we are now about to enter, I shall 
use the terms Money and the Precious Metals indiscriminately. 
This may be done without leading to any error ; it having been 
shown that the value of money, when it consists of the precious 
metals, or of a paper currency convertible into them on demand, 
is entirely governed by the value of the metals themselves : from 
which it never permanently differs, except by the expense of 
coinage when this is paid by the individual and not by the 
state. 

Money is brought into a country in two different ways. It is 
imported (chiefly in the form of buUion) like any other merchandize, 
as being an advantageous article of commerce. It is also imported 
in its other character of a medium of exchange, to pay some debt 
due to the country, either for goods exported or on any other account. 
There are other ways in which it may be introduced casually ; 
these are the two in which it is received in the ordinary course of 
business and which determine its value. The existence of these 
two distinct modes in which money flows in'to a country, while 
other commodities are habitually introduced only in the first of 



W8r^^~ ^BOOK III. CHAPTER XIX. § 2 

these modes, occasions somewhat more of complexity and obscurity 
than exists in the case of other commodities, and for this reason 
only is any special and minute exposition necessary. 

§ 2. In so far as the precious metals are imported in the ordinary 
way of commerce, their value must depend on the same causes, 
and conform to the same laws, as the value of any other foreign 
production. It is in this mode chiefly that gold and silver diffuse 
themselves from the mining countries into all other parts of the 
commercial world. They are the staple commodities of those 
countries, or at least are among their great articles of regular export ; 
and are shipped on speculation, in the same manner as other export- 
able commodities. The quantity, therefore, which a country (say 
England) will give of its own produce, for a certain quantity of 
bullion, will depend, if we suppose only two countries and two 
commodities, upon the demand in England for bullion, compared 
with the demand in the mining country (which we will call Brazil) 
for what England has to give. They must exchange in such pro- 
portions as will leave no unsatisfied demand on either side, to alter 
values by its competition. The bullion required by England must 
exactly pay for the cottons or other English commodities required 
by Brazil. If, however, we substitute for this simplicity the degree 
of complication which really exists, the equation of internationai 
demand must be established not between the bullion wanted in 
England and the cottons or broadcloth wanted in Brazil, but between 
the whole of the imports of England and the whole of her exports. 
The demand in foreign countries for English products must be 
brought into equilibrium with the demand in England for the 
products of foreign countries ; and all foreign commodities, bullion 
among the rest, must be exchanged against English products in 
such proportions as will, by the effect they produce on the demand, 
establish this equilibrium. 

There is nothing in the peculiar nature or uses of the precious 
metals which should make them an exception to the general 
principles of demand. So far as they are wanted for purposes of 
luxury or the arts, the demand increases with the cheapness, in 
the same irregular way as the demand for any other commodity. 
So far as they are required for money, the demand increases with 
the cheapness in a perfectly regular way, the quantity needed 
being always in inverse proportion to the value. This is the only 
real difference, in respect to demand, between money and other 



MONEY AS AN IMPORTED COMMODITY 609 

tilings ; and for the present purpose it is a difierence altogether 
immaterial. 

Money, then, if imported solely as a merchandize, will, like 
other imported commodities, be of lowest value in the countries 
for whose exports there is the greatest foreign demand, and which 
have themselves the least demand for foreign commodities. To 
these two circumstances it is however necessary to add two others, 
which produce their effect through cost of carriage. The cost of 
obtaining bullion is compounded of two elements ; the goods given 
to purchase it, and the expense of transport : of which last, the 
bullion countries will bear a part, (though an uncertain part,) in 
the adjustment of international values. The expense of transport 
is partly that of carrying the goods to the bullion countries, and 
partly that of bringing back the bullion : both these items are 
influenced by the distance from the mines ; and the former is also 
much affected by the bulkiness of the goods. Countries whoso 
exportable produce consists of the finer manufactures, obtain bullion, 
as well as all other foreign articles, cceteris paribus, at less expense 
than countries which export nothing but bulky raw produce. 

To be quite accurate, therefore, we must say — The countries 
whose exportable productions are most in demand abroad, and 
contain greatest value in smallest bulk, which are nearest to the 
mines, and which have least demand for foreign productions, are 
those in which money will be of lowest value, or, in other words, 
in which prices will habitually range the highest. If we are speaking 
not of the value of money, but of its cost, (that is, the quantity of 
the country's labour which must be expended to obtain it,) we must 
add to these four conditions of cheapness a fifth condition, namely, 
*' whose productive industry is the most efficient." This last, how- 
ever, does not at all affect the value of money, estimated in com- 
modities : it affects the general abundance and facility with which 
all things, money and commodities together, can be obtained. 

Although, therefore, Mr. Senior is right in pointing out the great 
efficiency of English labour as the chief cause why the precious 
metals are obtained at less cost by England than by most other 
countries, I cannot admit that it at all accounts for their being of 
less value ; for their going less far in the purchase of commodities. 
This, in so far as it is a fact, and not an illusion, must be occasioned 
by the great demand in foreign countries for the staple commodities 
of England, and the generally unbulky character of those com- 
modities, compared with the corn, wine, timber^ sugar, wool, hides, 

X 



610 BOOK III. CHAPTER XIX. § 3 

tallow, hemp, flax, tobacco, raw cotton, &c., whicli form the exports 
of other commercial coimtries. These two causes will account for 
a somewhat higher range of general prices in England than elsewhere, 
notwithstanding the counteracting influence of her own great demand 
for foreign commodities. I am, however, strongly of opinion that 
the high prices of commodities, and low purchasing power of money 
in England, are more apparent than real. Food, indeed, is some- 
what dearer ; and food composes so large a portion of the expenditure 
when the income is small and the family large, that to such famihes 
England is a dear country. Services, also, of most descriptions, 
are dearer than in the other countries of Europe, from the less 
costly mode of Uving of the poorer classes on the Continent. But 
manufactured commodities (except most of those in which good 
taste is required) are decidedly cheaper ; or would be so if buyers 
would be content with the same quahty of material and of work- 
manship. What is called the dearness of living in England is 
mainly an affair not of necessity but of fooKsh custom ; it being 
thought imperative by all classes in England above the condition 
of a day-labourer that the things they consume should either be 
of the same quahty with those used by much richer people, or at 
least should be as nearly as possible undistinguishable from them 
in outward appearance. 

§ 3. From the preceding considerations, it appears that those 
are greatly in error who contend ^ that the value of money, in 
countries where it is an imported commodity, must be entirely 
regulated by its value in the countries which produce it ; and 
cannot be raised or lowered in any permanent manner unless some 
change has taken place in the cost of production at the mines. On 
the contrary, any circumstance which disturbs the equation of 
international demand with respect to a particular country, not only 
may, but must, affect the value of money in that country — its value 
at the mines remaining the same. The opening of a new branch 
of export trade from England ; an increase in the foreign demand 
for Enghsh products, either by the natural course of events, or by 
the abrogation of duties ; a check to the demand in England for 
foreign commodities, by the laying on of import duties in England 
or of export duties elsewhere ; these and all other events of similar 
tendency, would make the imports of England (buUion and other 

^ [In the 1st and 2nd editions here followed : " (as has been done in the 
controversies called forth by the recent publications of Colonel Torrens)."] 



MONEY AS AN IMPORTED COMIODITY 611 

things taken together) no longer an equivalent for the exports ; 
and the countries which take her exports would be obliged to offer 
their commodities, and bullion among the rest, on cheaper terms, 
in order to re-estabHsh the equation of demand : and thus England 
would obtain money cheaper, and would acquire a generally higher 
range of prices. Incidents the reverse of these would produce effects 
the reverse — would reduce prices ; or, in other words, raise the 
value of the precious metals. It must be observed, however, that 
money would be thus raised in value only with respect to home 
commodities : in relation to all imported articles it would remain 
as before, since their values would be affected in the same way 
and in the same degree with its own. A country whichj from any 
of the causes mentioned, gets money cheaper, obtains all its othei 
imports cheaper Hkewise. 

It is by no means necessary that the increased demand for 
English commodities, which enables England to supply herself with 
bulhon at a cheaper rate, should be a demand in the mining countries. 
England might export nothing whatever to those countries, and 
yet might be the country which obtained bullion from them on the 
lowest terms, provided there were a sufficient intensity of demand 
in other foreign countries for Enghsh goods, which would be paid 
for circuitously with gold and silver from the mining countries. 
The whole of its exports are what a country exchanges against the 
whole of its imports, and not its exports and imports to and from 
any one country ; and the general foreign demand for its productions 
wiU determine what equivalent it must give for imported goods, in 
order to establish an equiUbrium between its sales and purchases 
generally ; without regard to the maintenance of a similar equili- 
brium between it and any country singly. 



CHAPTER XX 

OP THE FOREIGN EXCHANGES 

§ 1. We have thus far considered the precious metals as a 
commodity, imported like other commodities in the common course 
of trade, and have examined what are the circumstances which 
would in that case determine their value. But those metals are 
also imported in another character, that which belongs to them as 
ft medium of exchange ; not as an article of commerce, to be sold 
for money, but as themselves money, to pay a debt, or effect a 
transfer of property. It remains to consider whether the HabiUty 
of gold and silver to be transported from country to country for 
such purposes, in any way modifies the conclusions we have already 
arrived at, or places those metals under a different law of value 
from that to which, in common with all other imported commodities, 
they would be subject if international trade were an affair of direct 
barter. 

Money is sent from one country to another for various purposes : 
such as the payment of tributes or subsidies ; remittances of revenue 
to or from dependencies, or of rents or other incomes to their absent 
owners ; emigration of capital, or transmission of it for foreign 
investment. The most usual purpose, however, is that of payment 
for goods. To show in what circumstances money actually passes 
from country to country for this or any of the other purposes 
mentioned, it is necessary briefly to state the nature of the mechanism 
by which international trade is carried on, when it takes place not 
by barter but through the medium of money. 

§ 2. In practice, the exports and imports of a country not 
only are not exchanged directly against each other, but often do 
not even pass through the same hands. Each is separately bought 
and paid for with money. We have seen, however, that, even in 
the same country, money does not actually pass from hand to hand 



THE f'OREIGN EXCHANGES 613 

each time that purchases are made with it, and still less does this 
happen between different countries. The habitual mode of paying 
and receiving payment for commodities, between country and 
country, is by bills of exchange. 

A merchant in England, A, has exported Enghsh commodities, 
consigning them to his correspondent B in France. Another 
merchant in France, C, has exported French commodities, suppose 
of equivalent value, to a merchant D in England. It is evidently 
unnecessary that B in France should send money to A in England, 
and that D in England should send an equal sum of money to C in 
France. The one debt may be appHed to the payment of the other, 
and the double cost and risk of carriage be thus saved. A draws 
a bill on B for the amount which B owes to him : D, having an 
equal amount to pay in France, buys this bill from A, and sends it 
to C, who, at the expiration of the number of days which the bill 
has to run, presents it to B for payment. Thus the debt due from 
France to England, and the debt due from England to France, are 
both paid without sending an ounce of gold or silver from one country 
to the other. 

In this statement, however, it is supposed, that the sum of 
the debts due from France to England, and the sum of those due 
from England to France, are equal; that each country has exactly 
the same number of ounces of gold or silver to pay and to receive. 
This imphes (if we exclude for the present any other international 
payments than those occurring in the course of commerce), that 
the exports and imports exactly pay for one another, or, in other 
words, that the equation of international demand is established. 
When such is the fact, the international transactions are Hquidated 
without the passage of any money from one country to the other. 
But if there is a greater sum due from England to France, than is 
due from France to England, or vice versa, the debts cannot be 
simply written off against one another. After the one has been 
appHed, as far as it will go, towards covering the otherj the balance 
must be transmitted in the precious metals. In point of fact, the 
merchant who has the amount to pay, will even then pay for it 
by a bill. When a person has a remittance to make to a foreign 
country, he does not himself search for some one who has money 
to receive from that country, and ask him for a bill of exchange. 
In this, as in other branches of business, there is a class of middlemen 
or brokers, who bring buyers and sellers together, or stand between 
them, buying bills from those who have money to receive, and 



614 BOOK in. CHAPTER XX. § 2 

selling bills to those who have money to pay. When a customer 
comes to a broker for a bill on Paris or Amsterdam, the broker sells 
to him, perhaps the bill he may himself have bought that morning 
from a merchant, perhaps a bill on his own correspondent in the 
foreign city : and to enable his correspondent to pay, when due, 
all the biUs he has granted, he remits to him all those which he has 
bought and has not resold. In this manner these brokers take upon 
themselves the whole settlement of the pecuniary transactions 
between distant places, being remunerated by a small commission 
or percentage on the amount of each bill which they either sell or 
buy. Now, if the brokers find that they are asked for bills on the 
one part, to a greater amount than bills are offered to them on the 
other, they do not on this account refuse to give them : but since, 
in that case, they have no means of enabhng the correspondents 
on whom their bills are drawn, to pay them when due, except by 
transmitting part of the amount in gold or silver, they require 
from those to whom they sell bills an additional price, sufficient 
to cover the freight and insurance of the gold and silver, with a 
profit sufficient to compensate them for their trouble and for the 
temporary occupation of a portion of their capital. This premium 
(as it is called) the buyers are willing to pay, because they must 
otherwise go to the expense of remitting the precious metals them- 
selves, and it is done cheaper by those who make doing it a part 
of their especial business. But though only some of those who 
have a debt to pay would have actually to remit money, all will be 
obliged, by . each other's competition, to pay the premium ; and 
the brokers are for the same reason obUged to pay it to those whose 
bills they buy. The reverse of all this happens if, on the comparison 
of exports and imports, the country, instead of having a balance 
to pay, has a balance to receive. The brokers find more bills offered 
to them than are sufficient to cover those which they are required 
to grant. Bills on foreign countries consequently fall to a discount ; 
and the competition among the brokers, which is exceedingly 
active, prevents them from retaining this discount as a profit for 
themselves, and obhges them to give the benefit of it to those who 
buy the bills for purposes of remittance. 

Let us suppose that all countries had the same currency, as in 
the progress of pohtical improvement they one day will have : and, 
as the most famihar to the reader, though not the best, let us suppose 
this currency to be the Enghsh. When England had the same 
number of pounds sterUng to pay to France, which France had to 



THE FOREIGN EXCHANGES 615 

pay to her, one set of mercliants in England would want bills, and 
another set would have bills to dispose of, for the very same number 
of pounds sterUng ; and consequently a bill on France for 100?. 
would sell for exactly 100?., or, in the phraseology of merchants, 
the exchange would be at par. As France also, on this supposition, 
would have an equal number of pounds sterUng to pay and to receive, 
bills on England would be at par in France, whenever bills on 
France were at par in England. 

If, however, England had a larger sum to pay to France than 
to receive from her, there would be persons requiring bills on France 
for a greater number of pounds sterling than there were bills drawn 
by persons to whom money was due. A bill on France for 1001. 
would then sell for more than 100?., and bills would be said to be 
at a premium. The premium, however, could not exceed the cost 
and risk of making the remittance in gold, together with a trifling 
profit ; because if it did, the debtor would send the gold itself, in 
preference to buying the bill. 

. If, on the contrary, England had more money to receive from 
France than to pay, there would be bills ofiered for a greater number 
of pounds than were wanted for remittance, and the price of bills 
would fall below par : a bill for a 100?. might be bought for somewhat 
less than 100?., and bills would be said to be at a discount. 

When England has more to pay than to receive, France has 
more to receive than to pay, and vice versa. When, therefore, in 
England, bills on France bear a premium, then, in France, bills 
on England are at a discount : and when bills on France are at 
a discount in England, bills on England are at a premium in 
France. If they are at par in either country, they are so, as we 
have already seen, in both. 

Thus do matters stand between countries, or places, which have 
the same currency. So much of barbarism, however, still remains 
in the transactions of the most civilized nations, that almost all 
independent countries choose to assert their nationality by having, 
to their own inconvenience and that of their neighbours, a pecuHar 
currency of their own. To our present purpose this makes no 
other difference, than that instead of speaking of equal sums of 
money, we have to speak of equivalent sums. By equivalent sums, 
when both currencies are composed of the same metal, are meant 
sums which contain exactly the same quantity of the metal, in 
weight and fineness ; but when, as in the case of France and Eng- 
land, the metals are different, what is meant is that the quantity 



616 BOOK III. CHAPTER XX. § 2 

of gold in the one sum, and tlie quantity of silver in the other, are 
of the same value in the general market of the world : there being 
no material difference between one place and another in the relative 
value of these metals. Suppose 25 francs to be (as within a trifling 
fraction it is) the equivalent of a pound sterHng. The debts and 
credits of the two countries would be equal, when the one owed 
as many times 25 francs, as the other owed pounds. When this 
was the case, a bill on France for 2500 francs would be worth in 
England 100?., and a bill on England for 1001. would be worth in 
France 2500 francs. The exchange is then said to be at par : and 
25 francs (in reaUty 25 francs and a trifle more) * is called the par 
of exchange with France. When England owed to France more 
than the equivalent of what France owed to her, a bill for 2500 
francs would be at a premium, that is, would be worth more than 
1001. When France owed to England more than the equivalent 
of what England owed to France, a bill for 2500 francs would be 
worth less than 1001., or would be at a discount. 

When bills on foreign countries are at a premium, it is customary 
to say that the exchanges are against the country, or unfavourable 
to it. In order to understand these phrases, we must take notice 
of what " the exchange," in the language of merchants, really 
means. It means the power which the money of the country has 
of purchasing the money of other countries. Supposing 25 francs 
to be the exact par of exchange, then when it requires more than 
lOOL to buy a bill for 2500 francs, lOOL of English money are worth 
less than their real equivalent of French money : and this is called 
an exchange unfavourable to England. The only persons in Eng- 
land, however, to whom it is really unfavourable are those who 
have money to pay in France ; for they come into the bill market 
as buyers, and have to pay a premium : but to those who have 
money to receive in France, the same state of things is favourable ; 
for they come as sellers, and receive the premium. The premium, 
however, indicates that a balance is due by England, which might 
have to be eventually liquidated in the precious metals : and since, 
according to the old theory, the benefit of a trade consisted in 
bringing money into the country, this prejudice introduced the 
practice of calling the exchange favourable when it indicated a 

* [1862] Written before the change in the relative value of the two metals 
produced by the gold discoveries. The par of exchange between gold and 
silver currencies is now variable, and no one can foresee at what point it 
will ultimately rest. 



TflE FOREIGN EXCHANGES 61? 

balance to receive, and unfavourable when it indicated one to pay : 
and the phrases in turn tended to maintain the prejudice. 

§ 3. It might be supposed at first sight that when the exchange 
is unfavourable, or, in other words, when bills are at a premium, 
the premium must always amount to a full equivalent for the cost 
of transmitting money : since, as there is really a balance to pay, 
and as the full cost must therefore be incurred by some of those 
who have remittances to make, their competition will compel all 
to submit to an equivalent sacrifice. And such would certainly 
be the case, if it were always necessary that whatever is destiifed 
to be paid should be paid immediately. The expectation of great 
and immediate foreign payments sometimes produces a most start- 
Hng effect on the exchanges.* But a small excess of imports above 
exports, or any other small amount of debt to be paid to foreign 
countries, does not usually affect the exchanges to the full extent 
of the cost and risk of transporting bullion. The length of credit 
allowed generally permits, on the part of some of the debtors, a 
postponement of payment, and in the mean time the balance may 
turn the other way, and restore the equahty of debts and credits 
without any actual transmission of the metals. And this is the 
more likely to happen, as there is a self-adjusting power in the 
variations of the exchange itself. Bills are at a premium because 
a greater money value has been imported than exported. But the 
premium is itself an extra profit to those who export. Besides the 
price they obtain for their goods, they draw for the amount and 
gain the premium. It is, on the other hand, a diminution of profit 
to those who import. Besides the price of the goods, they have 
to pay a premium for remittance. So that what is called an un- 
favourable exchange is an encouragement to export, and a discourage- 
ment to import. And if the balance due is of small amount, and 

* On the news of Bonaparte's landing from Elba, the price of bills advanced 
in one day as much as ten per cent. Of course this premium was not a mere 
equivalent for cost of carriage, since the freight of such an article as gold, even 
with the addition of war insurance, could never have amounted to so much. 
This great price was an equivalent not for the difficulty of sending gold, but for 
the anticipated difficulty of procuring it to send ; the expectation being that 
there would be such immense remittances to the Continent in subsidies and for 
the support of armies, as would press hard on the stock of bullion in the country 
(which was then entirely denuded of specie), and this, too, in a shorter time than 
would allow of its being replenished. Accordingly the price of bullion rose 
likewise, with the same suddenness. It is hardly necessary to say that this 
took place during the Bank restriction. In a convertible state of the currency, 
no such thing could have occurred until the Bank stopped payment. 



618 BOOK III. CHAPTER XX. § 3 

is the consequence of some merely casual disturbance in the ordinary 
course of trade, it is soon liquidated in commodities, and the account 
adjusted by means of bills, without the transmission of any bullion. 
Not so, however, when the excess of imports above exports, which 
has made the exchange unfavourable, arises from a permanent 
cause. In that case, what disturbed the equilibrium must have 
been the state of prices, and it can only be restored by acting on 
prices. It is impossible that prices should be such as to invite to 
an excess of imports, and yet that the exports should be kept 
permanently up to the imports by the extra profit on exportation 
derived from the premium on bills ; for if the exports were kept 
up to the imports, bills would not be at a premium, and the extra 
profit would not exist. It is through the prices of commodities 
that the correction must be administered. 

Disturbances, therefore, of the equilibrium of imports and 
exports, and consequent disturbances of the exchange, may be 
considered as of two classes ; the one casual or accidental, which, 
if not on too large a scale, correct themselves through the premium 
on bills, without any transmission of the precious metals ; the other 
arising from the general state of prices, which cannot be corrected 
without the subtraction of actual money from the circulation of 
one of the countries, or an annihilation of credit equivalent to it ; 
since the mere transmission of bullion (as distinguished from money), 
not having any eSect on prices, is of no avail to abate the cause 
from which the disturbance proceeded. 

It remains to observe, that the exchanges do not depend on 
the balance of debts and credits with each country separately, but 
with all countries taken together. England may owe a balance 
of payments to France ; but it does not follow that the exchange 
with France will be against England, and that bills on France will 
be at a premium ; because a balance may be due to England from 
Holland or Hamburg, and she may pay her debts to France with 
bills on those places ; which is technically called arbitration of 
exchange. There is some little additional expense, partly com- 
mission and partly loss of interest, in settling debts in this circuitous 
manner, and to the extent of that small difference the exchange 
with one country may vary apart from that with others ; but in 
the main, the exchanges with all foreign countries vary together, 
according as the country has a balance to receive or to pay on the 
general result of its foreign transactions. 



CHAPTER XXI 

OF THE DISTRIBUTION OP THE PRECIOUS METALS THROUGH THB 

COMMERCIAL WORLD 

§ 1. Having now examined the meclianism by wliich the 
commercial transactions between nations are actually conducted, 
we have next to inquire whether this mode of conducting them 
makes any difference in the conclusions respecting international 
values, which we previously arrived at on the hypothesis of barter. 

The nearest analogy would lead us to presume the negative. 
We did not find that the intervention of money and its substitutes 
made any difference in the law of value as apphed to adjacent 
places. Things which would have been equal in value if the mode 
of exchange had been by barter, are worth equal sums of money. 
The introduction of money is a mere addition of one more com- 
modity, of which the value is regulated by the same laws as that 
of all other commodities. We shall not be surprised, therefore, if 
we find that international values also are determined by the same 
causes under a money and bill system, as they would be under a 
system of barter ; and that money has little to do in the matter, 
except to furnish a convenient mode of comparing values. 

All interchange is, in substance and effect, barter : whoever 
sells commodities for money, and with that money buys other goods, 
really buys those goods with his own commodities. And so of 
nations : their trade is a mere exchange of exports for imports ; 
and whether money is employed or not, things are only in their 
permanent state when the exports and imports exactly pay for each 
other. When this is the case, equal sums of money are due from 
each country to the other, the debts are settled by bills, and there 
is no balance to be paid in the precious metals. The trade is in 
a state Hke that which is called in mechanics a condition of stable 
equilibrium. 

But the process by which things are brought back to this state 



620 BOOK III. CHAPTER XXL § 1 

when they happen to deviate from it, is, at least outwardly, not the 
same in a barter system and in a money system. Under the first, 
the country which wants more imports than its exports will pay for, 
must offer its exports at a cheaper rate, as the sole means of creating 
a demand for them sufficient to re-estabHsh the equilibrium. When 
money is used, the country seems to do a thing totally different. 
She takes the additional imports at the same price as before, and as 
she exports no equivalent, the balance of payments turns against 
her ; the exchange becomes unfavourable, and the difference has to 
be paid in money. This is in appearance a very distinct operation 
from the former. Let us see if it differs in its essence, or only in its 
mechanism. 

Let the country which has the balance to pay be England, and 
the country which receives it, France. By this transmission of the 
precious metals, the quantity of the currency is diminished in Eng- 
land, and increased in France. This I am at Hberty to assume. 
As we shall see hereafter, it would be a very erroneous assumption 
if made in regard to all payments of international balances. A 
balance which has only to be paid once, such as the payment made 
for an extra importation of corn in a season of dearth, may be paid 
from hoards, or from the reserves of bankers, without acting on the 
circulation. But we are now supposing that there is an excess of 
imports over exports, arising from the fact that the equation of 
international demand is not yet estabhshed : that there is at the 
ordinary prices a permanent demand in England for more French 
goods than the Enghsh goods required in France at the ordinary 
prices will pay for. When this is the case, if a change were not 
made in the prices, there would be a perpetually renewed balance to 
be paid in money. The imports require to be permanently dimin- 
ished, or the exports to be increased ; which can only be accom- 
phshed through prices ; and hence, even if the balances are at first 
paid from hoards, or by the exportation of bullion, they wiU reach 
the circulation at last, for until they do, nothing can stop the drain. 

When, therefore, the state of prices is such that the equation of 
international demand cannot estabHsh itself, the country requiring 
more imports than can be paid for by the exports ; it is a sign that 
the country has more of the precious metals or their substitutes 
in circulation, than can permanently circulate, and must necessarily 
part with some of them before the balance can be restored. The 
currency is accordingly contracted : prices fall, and, among the rest, 
the prices of exportable articles ; for which, accordingly, ther© 



DISTRIBUTION OF THE PRECIOUS METALS 621 

arises, in foreign countries, a greater demand : while imported 
commodities have possibly risen in price, from the influx of money 
into foreign countries, and at all events have not participated in the 
general fall. But until the increased cheapness of English goods 
induces foreign countries to take a greater pecuniary value, or until 
the increased deamess (positive or comparative) of foreign goods 
makes England take a less pecuniary value, the exports of England 
will be no nearer to paying for the imports than before, and the 
stream of the precious metals which had begun to flow out of England, 
will still flow on. This efflux will continue, until the fall of prices 
in England brings within reach of the foreign market some com- 
modity which England did not previously send thither ; or until 
the reduced prices of the things which she did send, has forced a 
demand abroad for a sufficient quantity to pay for the imports, 
aided, perhaps, by a reduction of the English demand for foreign 
goods, through their enhanced price, either positive or comparative. 
Now this is the very process which took place on our original 
supposition of barter. Not only, therefore, does the trade between 
nations tend to the same equilibrium between exports and imports, 
whether money is employed or not, but the means by which this 
equilibrium is established are essentially the same. The country 
whose exports are not sufficient to pay for her imports, offers them 
on cheaper terms, until she succeeds in forcing the necessary demand : 
in other words, the Equation of International Demand, under a 
money system as well as under a barter system, is the law of inter- 
national trade. Every country exports and imports the very same 
things, and in the very same quantity, under the one system as 
under the other. In a barter system, the trade gravitates to the 
point at which the sum of the imports exactly exchanges for the 
sum of the exports: in a money system, it gravitates to the point 
at which the sum of the imports and the sum of the exports exchange 
for the same quantity of money. And since things which are 
equal to the same thing are equal to one another, the exports and 
imports which are equal in money price, would, if money were not 
used, precisely exchange for one another.* 

i 

* The subjomed extract from the separate Essay previously referred to, will 
give some assistance in following the course of the phenomena. It is adapted 
to the imaginary case used for illustration throughout that Essay, the case of a 
trade between England and Germany in cloth and linen. 

" We may, at first, make whatever supposition we will with respect to the 
value of money. Let us suppose, therefore, that before the opening of the trade, 
the price of cloth is the same in both countries, namely six shillings per yard. 



622 BOOK III. CHAPTER XXI. § 2 

§ 2. It thus appears that the law of international values, and, 
consequently, the division of the advantages of trade among the 
nations which carry it on, are the same, on the supposition of money, 
as they would be in a state of barter. In international, as in ordinary 
domestic interchanges, money is to commerce only what oil is to 
machinery, or railways to locomotion — a contrivance to diminish 
friction. In order still further to test these conclusions, let us 
proceed to re-examine, on the supposition of money, a question 
which we have already investigated on the hypothesis of barter, 

As ten yards of cloth were supposed to exchange in England for 16 yards of 
linen, in Germany for 20, we must suppose that linen is sold in England at four 
shillings per yard, in Germany at three. Cost of carriage and importer's profit 
are left, as before, out of consideration. 

" In this state of prices, cloth, it is evident, cannot yet be exported from 
England into Germany : but linen can be imported from Germany into England. 
It will be so ; and, in the first instance, the linen will be paid for in money. 

" The efflux of money from England, and its influx into Germany, wiU 
raise money prices in the latter country and lower them in the former. Linen 
will rise in Germany above three shillings per yard, and cloth above six shillings. 
Linen in England, being imported from Germany, will (since cost of carriage 
is not reckoned) sink to the same price as in that country, while cloth will 
fall below six shillings. As soon as the price of cloth is lower in England 
than in Germany, it wiU begin to be exported, and the price of cloth in 
Germany will fall to what it is in England. As long as the cloth exported 
does not suffice to pay for the linen imported, money will continue to flow 
from England into Germany, and prices generally will continue to fall in 
England and rise in Germany. By the fall, however, of cloth in England, 
cloth will fall in Germany also, and the demand for it will increase. By the 
rise of linen in Germany, linen must rise in England also, and the demand for 
it will diminish. As cloth fell in price and linen rose, there would be some 
particular price of both articles at which the cloth exported and the linen 
imported would exactly pay for each other. At this point prices would remain, 
because money would then cease to move out of England into Germany. 
What this point might be, would entirely depend upon the circumstances and 
inclinations of the purchasers on both sides. If the fall of cloth did not much 
increase the demand for it in Germany, and the rise of linen did not diminish 
very rapidly the demand for it in England, much money must pass before the 
equilibrium is restored ; cloth would fall very much, and linen would rise, until 
England, perhaps, had to pay nearly as much for it as when she produced it 
for herself. But if, on the contrary, the fall of cloth caused a very rapid 
increase of the demand for it in Germany, and the rise of linen in Germany 
reduced very rapidly the demand in England from what it was under the 
influence of the first cheapness produced by the opening of the trade; the 
cloth would very soon suffice to pay for the linen, little money would pass 
between the two countries, and England would derive a large portion of the 
benefit of the trade. We have thus arrived at precisely the same conclusion, 
in supposing the employment of money, which we found to hold under the 
supposition of barter. 

" In what shape the benefit accrues to the two nations from the trade is 
clear enough. Germany, before the commencement of the trade, paid six 
shillings per yard for broadcloth : she now obtains it at a lower price. This, 
however, is not the whole of her advantage. As the money prices of all her 






uan 



DISTRIBUTION OF THE PRECIOUS METALS 623 

namely, to what extent the benefit of an improvement in the pro- 
duction of an exportable article is participated in by the countries 
importing it. 

The improvement may either consist in the cheapening of some 
article which was already a staple production of the country, or in 
the establishment of some new branch of industry, or of some 
process rendering an article exportable which had not till then been 
exported at all. It will be convenient to begin with the case of a 
new export, as being somewhat the simpler of the two. 

The first effect is that the article falls in price, and a demand 

other commodities have risen, the money-incomes of aU her producers have 
increased. This is no advantage to them in buying from each other, because the 
price of what they buy has risen in the same ratio with their means of paying 
for it ; but it is an advantage to them in buying anything which has not risen, 
and, still more, anything which has fallen. They, therefore, benefit as con- 
sumers of cloth, not merely to the extent to which cloth has fallen, but also to 
the extent to which other prices have risen. Suppose that this is one-tenth. 
The same proportion of their money incomes as before will sufl&ce to supply 
their other wants ; and the remainder, being increased one-tenth in amount, 
will enable them to purchase one-tenth more cloth than before, even though 
cloth had not fallen : but it has fallen ; so that they are doubly gainers. They 
purchase the same quantity with less money, and have more to expend upon 
their other wants. 

" In England, on the contrary, general money-prices have fallen. Linen, 
however, has fallen more than the rest, having been lowered in price by impor- 
tation from a country where it was cheaper ; whereas the others have fallen 
only from the consequent efflux of money. Notwithstanding, therefore, the 
general fall of money-prices, the English producers will be exactly as they were 
in all other respects, while they will gain as purchasers of Unen. 

" The greater the efflux of money required to restore the equiUbrium, the 
greater will be the gain of Germany, both by the fall of cloth and by the rise 
of her general prices. The less the efflux of money requisite, the greater will be 
the gain of England ; because the price of linen will contiaue lower, and her 
general prices will not be reduced so much. It must not, however, be imagined 
that high money-prices are a good, and low money-prices an evil, in them- 
selves. But the higher the general money-prices in any country, the greater 
will be that country's means of purchasing those commodities which, being 
imported from abroad, are independent of the causes which keep prices high at 
home." 

In practice, the cloth and the linen would not, as here supposed, be at the 
same price in England and in Germany : each would be dearer in money-price 
in the country which imported than m that which produced it, by the amount 
of the cost of carriage, together with the ordinary profit on the importer's 
capital for the average length of time which elapsed before the commodity could 
be disposed of. But it does not follow that each country pays the cost of 
carriage of the commodity it imports ; for the addition of this item to the 
price may operate as a greater check to demand on one side than on the other ; 
and the equation of international demand, and consequent equihbrium of pay- 
ments, may not be maintained. Money would then flow out of one country into 
the other, until, in the manner already illustrated, the equilibrium was restored ; 
and, when this was effected, one country would be paying more thai ito own 
cost of carriage, and the other less. 



^24 BOOK III. CHAPTER XXL § 2 

arises for it abroad. This new exportation disturbs the balance, 
turns the exchanges, money flows into the country (which we shall 
suppose to be England), and continues to flow until prices rise. 
This higher range of prices will somewhat check the demand in 
foreign countries for the new article of export ; and will diminish 
the demand which existed abroad for the other things which England 
was in the habit of exporting. The exports will thus be diminished ; 
while at the same time the English public, having more money, will 
have a greater power of purchasing foreign commodities. If they 
make use of this increased power of purchase, there will be an 
increase of imports : and by this, and the check to exportation, the 
equilibrium of imports and exports will be restored. The result to 
foreign countries will be, that they have to pay dearer than before 
for their other imports, and obtain the new commodity cheaper 
than before, but not so much cheaper as England herself does. I 
say this, being well aware that the article would be actually at the 
very same price (cost of carriage excepted) in England and in other 
countries. The cheapness, however, of the article is not measured 
solely by the money-price, but by that price compared with the 
money incomes of the consumers. The price is the same to the 
EngUsh and to the foreign consumers ; but the former pay that 
price from money incomes which have been increased by the new 
distribution of the precious metals ; while the latter have had their 
money incomes probably diminished by the same cause. The trade, 
therefore, has not imparted to the foreign consumer the whole, but 
only a portion, of the benefit which the English consumer has 
derived from the improvement ; while England has also benefited 
in the prices of foreign commodities. Thus, then, any industrial 
improvement which leads to the opening of a new branch of export 
trade, benefits a country not only by the cheapness of the article in 
which the improvement has taken place, but by a general cheapening 
of all imported products. 

Let us now change the hypothesis, and suppose that the improve- 
ment, instead of creating a new export from England, cheapens 
an existing one. When we examined this case on the supposition 
of barter, it appeared to us that the foreign consumers might either 
obtain the same benefit from the improvement as England herself, 
or a less benefit, or even a greater benefit, according to the degree 
in which the consumption of the cheapened article is calculated to 
extend itself as the article diminishes in price. The same con- 
clusions will be found true on the supposition of money. 



DISTRIBUTION OF THE PRECIOUS METALS 625 

Let the commodity in which there is an improvement be cloth. 
The first effect of the improvement is that its price falls, and there 
is an increased demand for it in the foreign market. But this 
demand is of uncertain amount. Suppose the foreign consumers to 
increase their purchases in the exact ratio of the cheapness, or, in 
other words, to lay out in cloth the same sum of money as before ; the 
same aggregate payment as before will be due from foreign countries 
to England ; the equihbrium of exports and imports will remain 
undisturbed, and foreigners will obtain the full advantage of the 
increased cheapness of cloth. But if the foreign demand for cloth 
is of such a character as to increase in a greater ratio than the 
cheapness, a larger sum than formerly wiU be due to England for 
cloth, and when paid will raise EngUsh prices, the price of cloth 
included ; this rise, however, will affect only the foreign purchaser, 
English incomes being raised in a corresponding proportion ; and 
the foreign consumer will thus derive a less advantage than England 
from the improvement. If, on the contrary, the cheapening of 
cloth does not extend the foreign demand for it in a proportional 
degree, a less sum of debts than before will be due to England fox 
cloth, while there will be the usual sum of debts due from England 
to foreign countries ; the balance of trade will turn against England, 
money will be exported, prices (that of cloth included) will fall, and 
cloth will eventually be cheapened to the foreign purchaser in a still 
greater ratio than the improvement has cheapened it to England. 
These are the very conclusions which we deduced on the hypothesis 
of barter. 

The result of the preceding discussion cannot be better summed 
up than in the words of Ricardo.* " Gold and silver having been 
chosen for the general medium of circulation, they are, by the 
competition of commerce, distributed in such proportions amongst 
the different countries of the world as to accommodate themselves 
to the natural traffic which would take place if no such metals existed, 
and the trade between countries were purely a trade of barter." 
Of this principle, so fertile in consequences, previous to which the 
theory of foreign trade was an unintelligible chaos, Mr. Ricardo, 
though he did not pursue it into its ramifications, was the real 
originator. No writer who preceded him appears to have had a 
ghmpse of it : and few are those who even since his time have had 
an adequate conception of its scientific value. 

* Principles 0/ Political Economy and Taxation^ 3rd ed. p. 143. 



626 BOOK III. CHAPTER XXI. § 3 

§ 3. It is now necessary to inquire, in what manner this law 
of the distribution of the precious metals by means of the exchanges, 
affects the exchange value of money itself ; and how it tallies with 
the law by which we found that the value of money is regulated 
when imported as a mere article of merchandize. For there is here 
a semblance of contradiction, which has, I think, contributed more 
than anything else to make some distinguished poHtical economists 
resist the evidence of the preceding doctrines. Money, they justly 
think, is no exception to the general laws of value ; it is a commodity 
like any other, and its average or natural value must depend on the jj 
cost of producing, or at least of obtaining it. That its distribution 
through the world, therefore, and its different value in different 
places, should be Hable to be altered, not by causes affecting itself, 
but by a hundred causes unconnected with it ; by everything 
which affects the trade in other commodities, so as to derange the 
equiUbrium of exports and imports ; appears to these thinkers a 
doctrine altogether inadmissible. 

But the supposed anomaly exists only in semblance. The causes 
which bring money into or carry it out of a country through the 
exchanges to restore the equiUbrium of trade, and which thereby 
raise its value in some countries and lower it in others, are the verj' 
same causes on which the local value of money would depend ii 
it were never imported except as a merchandize, and never except 
directly from the mines. When the value of money in a country is 
permanently lowered by an influx of it through the balance of trade, 
the cause, if it is not diminished cost of production, must be one of 
those causes which compel a new adjustment, more favourable to 
the country, of the equation of international demand : namely, 
either an increased demand abroad for her commodities, or a dimin- 
ished demand on her part for those of foreign countries. Now an 
increased foreign demand for the commodities of a country, or a 
diminished demand in the country for imported commodities, are 
the very causes which, on the general principles of trade, enable 
a country to purchase all imports, and consequently the precious 
metals, at a lower value. There is therefore no contradiction, but 
the most perfect accordance in the results of the two different modes 
in which the precious metals may be obtained. When money flows 
from country to country in consequence of changes in the inter- 
national demand for commodities, and by so doing alters its own 
local value, it merely realizes, by a more rapid process, the effect 
which would otherwise take place more slowly, by an alteration in 



DISTRIBUTION OF THE PRECIOUS METALS 627 

the relative breadth, of the streams by which the precious metals flow 
into different regions of the earth from the mining countries. As, 
therefore, we before saw that the use of money as a medium of 
exchange does not in the least alter the law on which the values 
of other things, either in the same country or internationally, depend, 
so neither does it alter the law of the value of the precious metal 
itself : and there is in the whole doctrine of international values, as 
now laid down, a unity and harmony which is a strong collateral 
presumption of truth. 

§ 4. Before closing this discussion, it is fitting to point out in 
what manner and degree the preceding conclusions are affected by 
the existence of international payments not originating in commerce, 
and for which no equivalent in either money or commodities is 
expected or received ; such as a tribute, or remittances of rent to 
absentee landlords, or of interest to foreign creditors, or a govern- 
ment expenditure abroad, such as England incurs in the manage- 
ment of some of her colonial dependencies. 

To begin with the case of barter. The supposed annual re- 
mittances being made in commodities, and being exports for which 
there is to be no return, it is no longer requisite that the imports and 
exports should pay for one another : on the contrary, there must 
be an annual excess of exports over imports, equal to the value of 
the remittance. If, before the country became hable to the annual 
payment, foreign commerce was in its natural state of equilibrium, 
it will now be necessary for the purpose of effecting the remittance, 
that foreign countries should be induced to take a greater quantity 
of exports than before : which can only be done by offering those 
exports on cheaper terms, or, in other words, by paying dearer for 
foreign commodities. The international values will so adjust them- 
selves that either by greater exports, or smaller imports, or both, 
the requisite excess on the side of exports will be brought about ; 
and,^his excess will become the permanent state. The result is 
that*a country which makes regular payments to foreign countries, 
besides losing what it pays, loses also something more, by the less 
advantageous terms on which it is forced to e:^char)ge its productions 
for foreign commodities. 

The same results follow on the supposition of money. Commerce 
being supposed to be in a state of equiUbrium when the obhgatory 
remittances begin, the first remittance is necessarily made in money. 
This lowers prices in the remitting country, and raises them in the 



628 BOOK III. CHAPTER XXL § 4 

receiving. The natural effect is that more commodities are exported 
than before, and fewer imported, and that, on the score of commerce 
alone, a balance of money will be constantly due from the receiving 
to the paying country. When the debt thus annually due to the 
tributary country becomes equal to the annual tribute or other 
regular payment due from it, no further transmission of money takes 
place ; the equihbrium of exports and imports will no longer exist, 
but that of payments will ; the exchange will be at par, the two 
debts will be set ofi against one another, and the tribute or re- 
mittance will be virtually paid in goods. The result to the interest 
of the two countries will be as already pointed out : the paying 
country will give a higher price for all that it buys from the receiving 
country, while the latter, besides receiving the tribute, obtains the 
exportable produce of the tributary country at a lower price. 



CHAPTEE XXII 

INFLUENCE OF THE CURRENCY ON THE EXCHANGES AND ON 

FOREIGN TRADE 

§ 1. In our inquiry into the laws of international trade, we 
commenced with the principles which determine international 
exchanges and international values on the hypothesis of barter. We 
next showed that the introduction of money as a medium of exchange 
makes no difference in the laws of exchanges and of values between 
country and country, no more than between individual and in- 
dividual : since the precious metals, under the influence of those 
same laws, distribute themselves in such proportions among the 
different countries of the world, as to allow the very same exchanges 
to go on, and at the same values, as would be the case under a 
system of barter. We lastly considered how the value of money 
itself is affected, by those alterations in the state of trade which 
arises from alterations either in the demand and supply of com- 
modities, or in their cost of production. It remains to consider the 
alterations in the state of trade which originate not in commodities 
but in money. 

Gold and silver may vary like other things, though they are not 
so likely to vary as other things, in their cost of production. The 
demand for them in foreign countries may also vary. It may 
increase, by augmented employment of the metals for purposes of 
art and ornament, or because the increase of production and of 
transactions has created a greater amount of business to be done by 
the circulating medium. It may diminish, for the opposite reasons ; 
or from the extension of the economizing expedients by which the 
use of metallic money is partially dispensed with. These changes 
act upon the trade between other countries and the mining countries, 
and upon the value of the precious metals, according to the general 
laws of the value of imported commodities : which have been set 
forth in the previous chapters with sufficient fulness. 



630 BOOK III. CHAPTER XXII. § 2 

What I propose to examine in the present chapter, is not those 
circumstances affecting money, which alter the permanent con- 
ditions of its value ; but the effects produced on international trade 
by casual or temporary variations in the value of money, which have 
no connexion with any causes affecting its permanent value. This 
is a subject of- importance, on account of its bearing upon the 
practical problem which has excited so much discussion for sixty 
years past, the regulation of the currency. 

§ 2. Let us suppose in any country a circulating medium purely 
metallic, and a sudden casual increase made to it ; for example, by 
bringing into circulation hoards of treasure, which had been con- 
cealed in a previous period of foreign invasion or internal disorder. 
The natural effect would be a rise of prices. This would check 
exports, and encourage imports ; the imports would exceed the 
exports, the exchanges would become unfavourable, and the newly 
acquired stock of money would diffuse itself over all countries with 
which the supposed country carried on trade, and from them, 
progressively, through all parts of the commercial world. The 
money which thus overflowed would spread itself to an equal depth 
over all commercial countries. For it would go on flowing until 
the exports and imports again balanced one another : and this (as 
no change is supposed in the permanent circumstances of inter- 
national demand) could only be, when the money had diffused itself 
so equally that prices had risen in the same ratio in all countries, 
so that the alteration of price would be for all practical purposes 
ineffective, and the exports and imports, though at a higher money 
valuation, would be exactly the same as they were originally. This 
diminished value of money throughout the world (at least, if the 
diminution was considerable) would cause a suspension, or at least 
a diminution, of the annual supply from the mines : since the metal 
would no longer command a value equivalent to its highest cost of 
production. The annual waste would, therefore, not be fully made 
up, and the usual causes of destruction would gradually reduce the 
aggregate quantity of the precious metals to its former amount ; 
after which their production would recommence on its former scale. 
The discovery of the treasure would thus produce only temporary 
effects ; namely, a brief disturbance of international trade until the 
treasure had disseminated itself through the world, and then a 
temporary depression in the value of the metal, below that which 
corresponds to the cost of producing or of obtaining it ; which 



INFLUENCE OF CURRENCY ON iJUREIGN TRADE 631 

depression would gradually be corrected, by a temporarily dimiuislied 
production in the producing countries, and importation in the 
importing countries. 

Tlie same efiects which would thus arise from the discovery of a 
treasure, accompany the process by which bank notes, or any of 
the other substitutes for money, take the place of the precious 
metals. Suppose that England possessed a currency wholly metallic 
of twenty millions sterling, and that suddenly twenty millions of 
bank notes were sent into circulation. If these were issued by 
bankers, they would be employed in loans, or in the purchase of 
securities, and would therefore create a sudden fall in the rate of 
interest, which would probably send a great part of the twenty 
millions of gold out of the country as capital to seek a higher rate of 
interest elsewhere, before there had been time for any action on 
prices. But we will suppose that the notes are not issued by bankers 
or money-lenders of any kind, but by manufacturers, in the pay- 
ment of wages and purchase of materials, or by the government in 
its ordinary expenses, so that the whole amount would be rapidly 
carried into the markets for commodities. The following would be 
the natural order of consequences. All prices would rise greatly. 
Exportation would almost cease ; importation would be pro- 
digiously stimulated. A great balance of payments would become 
due, the exchanges would turn against England, to the full extent 
of the cost of exporting money ; and the surplus coin would pour 
itself rapidly forth, over the various countries of the world, in the 
order of their proximity, geographically and commercially, to Eng- 
land. The efflux would continue until the currencies of all countries 
had come to a level ; by which I do not mean, until money became 
of the same value everywhere, but until the difierences were only 
those which existed before, and which corresponded to permanent 
differences in the cost of obtaining it. When the rise of prices had 
extended itself in an equal degree to all countries, exports and imports 
would everywhere revert to what they were at first, would balance 
one another, and the exchanges would return to par. If such a sum 
of money as twenty millions, when spread over the whole surface 
of the commercial world, were sufficient to raise the general level 
in a perceptible degree, the effect would be of no long duration. No 
alteration having occurred in the general conditions under which 
the metals were procured, either in the world at large or in any part 
of it, the reduced value would no longer be remunerating and the 
supply from the mines would cease partially or wholly, until the 



632 BOOK III. CHAPTER XXII. § 2 

twenty millions were absorbed ; * after which absorption, the 
currencies of all countries would be, in quantity and in value, nearly 
at their original level. I say nearly, for in strict accuracy there 
would be a slight difierence. A somewhat smaller annual supply 
of the precious metals would now be required, there being in the 
world twenty millions less of metallic money undergoing waste. 
The equilibrium of payments, consequently, between the mining 
countries and the rest of the world, would thenceforth require that 
the mining countries should either export rather more of something 
else, or import rather less of foreign commodities ; which implies a 
somewhat lower range of prices than previously in the mining 
countries, and a some;;vhat higher in all others ; a scantier currency 
in the former, and rather fuller currencies in the latter. This effect, 
which would be too trifling to require notice except for the illustra- 
tion of a principle, is the only permanent change which would be 
produced on international trade, or on the value or quantity of tha 
currency of any country. 

Effects of another kind, however, wiU have been produced. 
Twenty millions, which formerly existed in the unproductive form 
of metallic money, have been converted into what is, or is capable 
of becoming, productive capital. This gain is at first made by 
England at the expense of other countries, who have taken her 
superfluity of this costly and unproductive article off her hands, 
giving for it an equivalent value in other commodities. By degrees 
the loss is made up to those countries by diminished influx from the 
mines, and finally the world has gained a virtual addition of twenty 
millions to its productive resources. Adam Smith's illustration, 
though so well known, deserves for its extreme aptness to be once 
more repeated. He compares the substitution of paper in the room 
of the precious metals, to the construction of a highway through the 
air, by which the gTound now occupied by roads would become 
available for agriculture. As in that case a portion of the soil, so 
in this a part of the accumulated wealth of the country, would be 
relieved from a function in which it was only employed in rendering 
other soils and capitals productive, and would itself become applicable 
to production ; the office it previously fulfilled being equally well 
discharged by a medium which costs nothing. 

* [1862] I am here supposing a state of things in which gold and silver 
mining are a permanent branch of industry, carried on under known conditions ; 
and not the present state of uncertainty, in which gold-gathering is a game of 
chance, prosecuted (for the present) in the spirit of an adventure, not in 
that of a regular industrial pursuit. 



INFLUENCE OF CURRENCY ON FOREIGN TRADE 633 

The value saved to the communifcy by tlius dispensing with 
metallic money, is a clear gain to those who provide the substitute. 
They have the use of twenty millions of circulating medium which 
have cost them only the expense of an engraver's plate. If they 
employ this accession to their fortunes as productive capital, the 
produce of the country is increased, and the community benefited, 
as much as by any other capital of equal amount. Whether it is so 
employed or not, depends, in some degree, upon the mode of issuing 
it. If issued by the government, and employed in paying off debt, it 
would probably become productive capital. The government, how- 
ever, may prefer employing this extraordinary resource in its ordinary 
expenses ; may squander it uselessly, or make it a mere temporary 
substitute for taxation to an equivalent amount ; in which last case 
the amount is saved by the taxpayers at large, who either add it to 
their capital or spend it as income. When paper currency is supplied, 
as in our own country, by bankers and banking coinpanies, the amount 
is almost wholly turned into productive capital : for the issuers, being 
at all times liable to be called upon to refund the value, are under the 
strongest inducements not to squander it, and the only cases in 
which it is not forthcoming are cases of fraud or mismanagement. A 
banker's profession being that of a money-lender, his issue of notes 
is a simple extension of his ordinary occupation. He lends the 
amount to farmers, manufacturers, or dealers, who employ it in their 
several businesses. So employed, it yields, like any other capital, 
wages of labour and profits of stock. The profit is shared between 
the banker, who receives interest, and a succession of borrowers, 
mostly for short periods, who after paying the interest, gain a profit 
in addition, or a convenience equivalent to profit. The capital 
itself in the long run becomes entirely wages, and when replaced by 
the sale of the produce, becomes wages again ; thus affording a 
perpetual fund, of the value of twenty millions, for the maintenance 
of productive labour, and increasing the annual produce of the 
country by all that can be produced through the means of a capital 
of that value. To this gain must be added a further saving to the 
country, of the annual supply of the precious metals necessary for 
repairing the wear and tear, and other waste, of a metallic currency. 

The substitution, therefore, of paper for the precious metals, 
should always be carried as far as is consistent with safety ; no 
greater amount of metallic currency being retained than is necessary 
to maintain, both in fact and in pubKc belief, the convertibility of 
the paper. A country with the extensive commercial relations of 



634 BOOK III. CHAPTER XXII. § 3 

England is liable to be suddenly called upon for large foreign pay- 
ments, sometimes in loans, or other investments of capital abroad, 
sometimes as the price of some unusual importation of goods, the 
most frequent case being that of large importations of food conse- 
quent on a bad harvest. To meet such demands it is necessary that 
there should be, either in circulation or in the cofiers of the banks, 
coin or bullion to a very considerable amount, and that this, when 
drawn out by any emergency, should be allowed to return after the 
emergency is past. But since gold wanted for exportation is almost 
invariably drawn from the reserves of the banks, and is never likely 
to be taken directly from the circulation while the banks remain 
solvent, the only advantage which can be obtained from retaining 
partially a metallic currency for daily purposes is that the banks 
may occasionally replenish their reserves from it. 

§ 3. When metallic money had been entirely superseded and 
expelled from circulation, by the substitution of an equal amount of 
bank notes, any attempt to keep a still further quantity of paper 
in circulation must, if the notes are convertible, be a complete failure. 
The new issue would again set in motion the same train of conse- 
quences by which the gold coin had already been expelled. The 
metals would, as before, be required for exportation, and would be for 
that purpose demanded from the banks, to the full extent of the 
superfluous notes ; which thus could not possibly be retained in 
circulation. If, indeed, the notes were inconvertible, there would 
be no such obstacle to the increase of their quantity. An inconver- 
tible paper acts in the same way as a convertible, while there remains 
any coin for it to supersede : the difference begins to manifest itself 
when all the coin is driven from circulation (except what may be 
retained for the convenience of small change), and the issues still 
go on increasing. When the paper begins to exceed in quantity 
the metalHc currency which it superseded, prices of course rise ; 
things which were worth 5Z. in metallic money, become worth 61. 
in inconvertible paper, or more, as the case may be. But this rise of 
price will not, as in the cases before examined, stimulate import, 
and discourage export. The imports and exports are determined 
by the metallic prices of things, not by the paper prices : and it is 
only when the paper is exchangeable at pleasure for the metals that 
paper prices and metallic prices must correspond. 

Let us suppose that England is the country which has the depre- 
ciated paper. Suppose that some English production could be 



INFLUENCE OF CURRENCY ON FOREIGN TRADE 635 

bought, while the currency was still metalUc, for 61., and sold in 
France for 51. lOs., the difference covering the expense and risk, 
and affording a profit to the merchant. On account of the depre- 
ciation this commodity will now cost in England 6Z., and cannot be 
sold in France for more than 61. IO5., and yet it will be exported as 
before. Why ? Because the 61. 10s., which the exporter can get for 
it in France, is not depreciated paper, but gold or silver: and since 
in England bullion has risen, in the same proportion with other 
things — if the merchant brings the gold or silver to England, he can 
sell his 61. 10s. for QL 12s., and obtain as before 10 per cent for profit 
and expenses. 

It thus appears, that a depreciation of the currency does not affect 
the foreign trade of the country : this is carried on precisely as if the 
currency maintained its value. But though the trade is not affected, 
the exchanges are. When the imports and exports are in equili- 
brium, the exchange, in a metallic currency, would be at par ; a 
bill on France for the equivalent of five sovereigns, would be worth 
five sovereigns. But five sovereigns, or the quantity of gold con- 
tained in them, having come to be worth in England 6L, it follows 
that a bill on France for 61. will be worth Ql. When, therefore, 
the real exchange is at par, there will be a nominal exchange against 
the country, of as much per cent as the amount of the depreciation. 
If the currency is depreciated 10, 15, or 20 per cent, then in whatever 
way the real exchange, arising from the variations of international 
debts and credits, may vary, the quoted exchange will always differ 
10, 15, or 20 per cent from it. However high this nominal premium 
may be, it has no tendency to send gold out of the country, for the 
purpose of drawing a bill against it and profiting by the premium ; 
because the gold so sent must be procured, not from the banks and 
at par, as in the case of a convertible currency, but in the market 
at an advance of price equal to the premium. In such cases, instead 
of saying that the exchange is unfavourable, it would be a more 
correct representation to say that the par has altered, since there is 
now required a larger quantity of EngHsh currency to be equivalent 
to the same quantity of foreign. The exchanges, however, continue 
to be computed according to the metallic par. The quoted exchanges, 
therefore, when there is a depreciated currency, are compounded of 
two elements or factors ; the real exchange, which follows the varia- 
tions of international payments, and the nominal exchange, which 
varies with the depreciation of the currency, but which, while there is 
any depreciation at all, must always be unfavourable. Since the 



636 BOOS III. CHAPTER XXII. § 3 

amount of depreciation is exactly measured by the degree in wMch 
tLe market price of bullion exceeds the Mint valuation, we have a 
sure criterion to determine what portion of the quoted exchange, 
being referable to depreciation, may be struck off as nominal ; the 
result so corrected expressing the real exchange. 

The same disturbance of the exchanges and of international 
trade, which is produced by an increased issue of convertible bank 
notes, is in hke manner produced by those extensions of credit, 
which, as was so fully shown in a preceding chapter, have the same 
effect on prices as an increase of the currency. Whenever circum- 
stances have given such an impulse to the spirit of speculation as to 
occasion a great increase of purchases on credit, money prices rise, 
just as much as they would have risen if each person who so buys on 
credit had bought with money. All the effects, therefore, must be 
similar. As a consequence of high prices, exportation is checked 
and importation stimulated ; though in fact the increase of importa- 
tion seldom waits for the rise of prices which is the consequence of 
speculation, inasmuch as some of the great articles of import are 
usually among the things in which speculative overtrading first 
shows itself. There is, therefore, in such periods, usually a great 
excess of imports over exports ; and when the time comes at which 
these must be paid for, the exchanges become unfavourable, and 
gold flows out of the country. In what precise manner this efflux 
of gold takes effect on prices, depends on circumstances of which we 
shall presently speak more fully ; but that its effect is to make 
them recoil downwards, is certain and evident. The recoil, once 
begun, generally becomes a total rout, and the unusual extension 
of credit is rapidly exchanged for an unusual contraction of it. 
Accordingly, when credit has been imprudently stretched, and the 
speculative spirit carried to excess, the turn of the exchanges, 
and consequent pressure on the banks to obtain gold for exportation, 
are generally the proximate cause of the catastrophe. But these 
phenomena, though a conspicuous accompaniment, are no essential 
part of the collapse of credit called a commercial crisis ; which^ 
as we formerly showed,* might happen to as great an extent, and ia 
quite as Hkely to happen, in a country, if any such there were, 
altogether destitute of foreign trade. 

* Supra, pp. 525-7. 



CHAPTER XXIII 

OP THE EATB OF INTEREST 

§ 1. The present seems tlie most proper place for discussing 
tlie circumstances wHch determine tlie rate of interest. The interest 
of loans, being really a question of exchange value, falls naturally 
into the present division of our subject : and the two topics of 
Currency and Loans, though in themselves distinct, are so intimately 
blended in the phenomena of what is called the money market, 
that it is impossible to understand the one without the other, and in 
many minds the two subjects are mixed up in the most inextricable 
confusion* 

In the preceding Book * we defined the relation in which interest 
stands to profit. We found that the gross profit of capital might 
be distinguished into three parts, which are respectively the remuner- 
ation for risk, for trouble, and for the capital itself, and may be 
termed insurance, wages of superintendence, and interest. After 
making compensation for risk, that is, after covering the average 
losses to which capital is exposed either by the general circumstances 
of society or by the hazards of the particular employment, there 
remains a surplus, which partly goes to repay the owner of the capital 
for his abstinence, and partly the employer of it for his time and 
trouble. How much goes to the one and how much to the other, is 
shown by the amount of the remuneration which, when the two 
functions are separated, the owner of capital can obtain from the 
employer for its use. This is evidently a question of demand and 
supply. Nor have demand and supply any difierent meaning or 
effect in this case from what they have in all others. The rate of 
interest will be such as to equalize the demand for loans with the 
supply of them. It will be such, that exactly as much as some 
people are desirous to borrow at that rate, others shall be willing 

* Supra, book ii. eh. xv. § 1. 



638 BOOK III. CHAPTER XXIII. § 2 

to lend. If there is more offered than demanded, interest will 
fall; if more is demanded than offered, it will rise; and, in both 
cases, to the point at which the equation of supply and demand ia 
re-established. 

Both the demand and supply of loans fluctuate more inces- 
santly than any other demand or supply whatsoever. The fluctua- 
tions in other things depend on a limited number of influencing 
circumstances ; but the desire to borrow, and the willingness to 
lend, are more or less influenced by every circumstance which 
affects the state or prospects of industry or commerce, either gener- 
ally or in any of their branches. The rate of interest, therefore, 
on good security, which alone we have here to consider (for interest 
in which considerations of risk bear a part may swell to any amount) 
is seldom, in the great centres of money transactions, precisely the 
same for two days together ; as is shown by the never-ceasing 
variations in the quoted prices of the funds and other negotiable 
securities. Nevertheless, there must be, as in other cases of value, 
/ some rate which (in the language of Adam Smith and Kicardo) may 
be called the natural rate ; some rate about which the market rate 
oscillates, and to which it always tends to return. This rate partly 
depends on the amount of accumulation going on in the hands of 
persons who cannot themselves attend to the employment of their 
savings, and partly on the comparative taste existing in the com- 
munity for the active pursuits of industry, or for the leisure, ease, 
and independence of an annuitant. 

§ 2. To exclude casual fluctuations, we will suppose commerce 
to be in a quiescent condition, no employment being unusually pros- 
perous, and none particularly distressed. In these circumstances, 
the more thriving producers and traders have their capital fully 
employed, and many are able to transact business to a considerably 
greater extent than they have capital for. These are naturally 
borrowers : and the amount which they desire to borrow, and can 
obtain credit for, constitutes the demand for loans on account of 
productive employment. To these must be added the loans required 
by Government, and by landowners, or other unproductive con- 
sumers who have good security to give. This constitutes the mass 
of loans for which there is an habitual demand. 

Now it is conceivable that there might exist, in the hands of 
persons disinclined or disqualified for engaging personally in business, 
a mass of capital equal to, and even exceeding, this demand. In that 



RATE OF INTEREST 639 

case there would be an habitual excess of competition on the part of 
lenders, and the rate of interest would bear a low proportion to the 
rate of profit. Interest would be forced down to the point which 
would either tempt borrowers to take a greater amount of loans 
than they had a reasonable expectation of being able to employ- 
in their business, or would so discourage a portion of the lenders, 
as to make them either forbear to accumulate, or endeavour to 
increase their income by engaging in business on their own 
account, and incurring the risks, if not the labours, of industrial 
employment. 

On the other hand, the capital owned by persons who prefer 
lending it at interest, or whose avocations prevent them from 
personally superintending its employment, may be short of the 
habitual demand for loans. It may be in great part absorbed by the 
investments afforded by the public debt and by mortgages, and the 
remainder may not be sufficient to supply the wants of commerce. 
If so, the rate of interest will be raised so high as in some way to 
re-establish the equilibrium. When there is only a small difference 
between interest and profit, many borrowers may no longer be willing 
to increase their responsibilities and involve their credit for so small 
a remuneration : or some who would otherwise have engaged in 
business, may prefer leisure, and become lenders instead of borrowers, 
or others, under the inducement of high interest and easy investment 
for their capital, may retire from business earlier, and with smaller 
fortunes, than they otherwise would have done. Or, lastly, there 
is another process by which, in England and other commercial coun- 
tries, a large portion of the requisite supply of loans is obtained. 
Instead of its being afforded by persons not in business, the affording 
it may itself become a business. A portion of the capital employed 
in trade may be supplied by a class of professional money lenders. 
These money lenders, however, must have more than a mere interest ; 
(chey must have the ordinary rate of profit on their capital, risk and 
all other circumstances being allowed for. But it can never answer 
to any one who borrows for the purposes of his business, to pay a 
full profit for capital from which he will only derive a full profit : 
and money-lending, as an employment, for the regular supply of 
trade, cannot, therefore, be carried on except by persons who, in 
addition to their own capital, can lend their credit, or, in other words, 
the capital of other people : that is, bankers, and persons (such as 
bill-brokers) who are virtually bankers, since they receive money in 
deposit. A bank which lends its notes, lends capital which it borrows 



640 BOOK III. CHAPTER XXIII. § 2 

from the community, and for wMch it pays no interest. A bank oi 
deposit lends capital whicli it collects from tlie community in small 
parcels ; sometimes without paying any interest, as is the case 
with the London private bankers ; and if, like the Scotch, the joint 
stock, and most of the country banks, it does pay interest, it still 
pays much less than it receives ; for the depositors, who in any other 
way could mostly obtain for such small balances no interest worth 
taking any trouble for, are glad to receive even a little. Having this 
subsidiary resource, bankers are enabled to obtain, by lending at 
interest, the ordinary rate of profit on their own capital. In any 
other manner, money-lending could not be carried on as a regular 
mode of business, except upon terms on which none would consent 
to borrow but persons either counting on extraordinary profits, or 
in urgent need : unproductive consumers who have exceeded their 
means, or merchants in fear of bankruptcy. The disposable capital 
deposited in banks ; that represented by bank notes ; the capital of 
bankers themselves, and that which their credit, in any way in which 
they use it, enables them to dispose of ; these, together with the 
funds belonging to those who, either from necessity or preference, 
live upon the interest of their property, constitute the general loan 
fund of the country : and the amount of this aggregate fund, when 
set against the habitual demands of producers and dealers, and those 
of the Government and of unproductive consumers, determines the 
permanent or average rate of interest ; which must always be such 
as to adjust these two amounts to one another.* But while the whole 
of this mass of lent capital takes effect upon the permanent rate of 
interest, the fluctuations depend almost entirely upon the portion 
which is in the hands of bankers ; for it is that portion almost exclu- 
sively which, being lent for short times only, is continually in the 
market seeking an investment. The capital of those who live on the 
interest of their own fortunes, has generally sought and found 
some fixed investment, such as the public funds, mortgages, or the 

* I do not include in the general loan fund of the country the capitals, 
large as they sometimes are, which are habitually employed in speculatively 
buying and selling the public funds and other securities. It is true that all 
who buy securities add, for the time, to the general amount of money on loan, 
and lower pro tanto the rate of interest. But as the persons I speak of buy 
only to sell again at a higher price, they are alternately in the position of lenders 
and of borrowers : their operations raise the rate of interest at one time, exactly 
as much as they lower it at another. Like all persons who buy and sell on 
speculation, their function is to equalize, not to raise or lower, the value of the 
commodity. When they speculate prudently, they temper the fluctuations of 
price ; when imprudently, they often aggravate them. 



RATE OF INTEREST 641 

bonds of public companies, wHcb investment, except under peculiar 
temptations or necessities, is not changed. 

§ 3. Fluctuations in the rate of interest arise from variations 
either in the demand for loans, or in the supply. The supply is 
Hable to variation, though less so than the demand. The wiUing- 
ness to lend is greater than usual at the commencement of a period 
of speculation, and much less than usual during the revulsion which 
follows. In speculative times, money-lenders as well as other people 
are inclined to extend their business by stretching their credit ; 
they lend more than usual (just as other classes of dealers and 
producers employ more than usual) of capital which does not belong 
to them. Accordingly, these are the times when the rate of interest 
is low ; though for this too (as we shall hereafter see) there are other 
causes. During the revulsion, on the contrary, interest always 
rises inordinately, because, while there is a most pressing need on the 
part of many persons to borrow, there is a general disincHnation to 
lend. This disincHnation, when at its extreme point, is called a 
panic. It occurs when a succession of unexpected failures has 
created in the mercantile, and sometimes also in the non-mercantile 
pubHc, a general distrust in each other's solvency ; disposing every 
one not only to refuse fresh credit, except on very onerous terms, 
but to call in, if possible, all credit which he has already given. 
Deposits are withdrawn from banks ; notes are returned on the 
issuers in exchange for specie ; bankers raise their rate of discount, 
and withhold their customary advances ; merchants refuse to renew 
mercantile bills. At such times the most calamitous consequences 
were formerly experienced from the attempt of the law to prevent 
more than a certain limited rate of interest from being given or taken. 
Persons who could not borrow at five per cent, had to pay, not six 
or seven, but ten or fifteen per cent, to compensate the lender for 
risking the penalties of the law : or had to sell securities or goods 
for ready money at a still greater sacrifice. 

In the intervals between commercial crises, there is usually a 
tendency in the rate of interest to a progressive decHne, from the 
gradual process of accumulation : which process, in the great 
commercial countries, is sufiiciently rapid to account for the almost 
periodical recurrence of these fits of speculation ; since, when a few 
years have elapsed without a crisis, and no new and tempting 
channel for investment has been opened in the meantime, there is 
always found to have occurred in those few years so large an increase 

Y 



642 BOOK III. CHAPTER XXIII. §3 

of capital seeking investment, as to have lowered considerably 
the rate of interest, whether indicated by the prices of securities 
or by the rate of discount on bills ; and this diminution of interest 
tempts the possessor to incur hazards in hopes of a more considerable 
return. 

^ The rate of interest is, at times, affected more or less permanently 
by circumstances, though not of frequent, yet of occasional occur- 
rence, which tend to alter the proportion between the class of interest- 
receiving and that of profit-receiving capitalists. Two causes of 
this description, operating in contrary ways, have manifested them- 
selves of late years, and are now producing considerable effects in 
England. One is the gold discoveries. The masses of the precious 
metals which are constantly arriving from the gold countries, are, 
it may safely be said, wholly added to the funds that supply the 
loan market. So great an additional capital, not divided between 
the two classes of capitalists, but aggregated bodily to the capital of 
the interest-receiving class, disturbs the pre-existing ratio between 
the two, and tends to depress interest relatively to profit. Another 
circumstance of still more recent date, but tending to the contrary 
effect, is the legalization of joint-stock associations with limited 
liability. The shareholders in these associations, now so rapidly 
multiplying, are drawn almost exclusively from the lending class ; 
from those who either left their disposable funds in deposit, to be 
lent out by bankers, or invested them in public or private securities, 
and received the interest. To the extent of their shares in any of 
these companies (with the single exception of banking companies) 
they have become traders on their own capital ; they have ceased 
to be lenders, and have even, in most cases, passed over to the class 
of borrowers. Their subscriptions have been abstracted from the 
funds which feed the loan market, and they themselves have become 
competitors for a share of the remainder of those funds : of all which 
the natural effect is a rise of interest. And it would not be surpris- 
ing if, for a considerable time to come, the ordinary rate of interest 
in England should bear a higher proportion to the common rate of 
mercantile profit, than it has borne at any time since the influx of 
new gold set in.* 

^ [This paragraph and the accompanying note were added in the 6th ed. 

(1865).] 

* [1865] To the cause of augmentation in the rate of interest, mentioned in 
the text, must be added another, forcibly insisted on by the author of an able 
article in the Edinburgh Review for January, 1865 ; the increased and increasing 
willingness to send capital abroad for investment. Owing to the vastly augmented 



RATE OF INTEREST 643 

The demand for loans varies much more largely than the supply, 
and embraces longer cycles of years in its aberrations. A time of 
war, for example, is a period of unusual drafts on the loan market. 
The Government, at such times, generally incurs new loans, and as 
these usually succeed each other rapidly as long as the war lasts, 
the general rate of interest is kept higher in war than in peace, 
without reference to the rate of profit, and productive industry is 
stinted of its usual supplies. During part of the last war with France, 
the Government could not borrow under six per cent, and of course 
all other borrowers had to pay at least as much. Nor does the influ- 
ence of these loans altogether cease when the Government ceases to 
contract others ; for those already contracted continue to afford an 
investment for a greatly increased amount of the disposable capital 
of the country, which if the national debt were paid ofE, would be 
added to the mass of capital seeking investment, and (independently 
of temporary disturbance) could not but, to some extent, permanently 
lower the rate of interest. 

The same effect on interest which is produced by Government 
loans for war expenditure, is produced by the sudden opening of any 
new and generally attractive mode of permanent investment. The 
only instance of the kind in recent history on a scale comparable 
to that of the war loans, is the absorption of capital in the construc- 
tion of railways. This capital must have been principally drawn 
from the deposits in banks, or from savings which would have gone 
into deposit, and which were destined to be ultimately employed 
in buying securities from persons who would have employed the 
purchase money in discounts or other loans at interest : in either 
case, it was a draft on the general loan fund. It is, in fact, evident, 
that unless savings were made expressly to be employed in railway 
adventure, the amount thus employed must have been derived either 
from the actual capital of persons in business, or from capital which 
would have been lent to persons in business. In the first case, the 
subtraction, by crippHng their means, obliges them to be larger 
borrowers ; in the second, it leaves less for them to borrow ; in 
either case it equally tends to raise the rate of interest. 

facilities of access to foreign countries, and the abundant information inces- 
santly received from them, foreign investments have ceased to inspire the terror 
that belongs to the unknown ; capital flows, without misgiving, to any place 
which affords an expectation of high profit ; and the loan market of the whole 
commercial world is rapidly becoming one. The rate of interest, therefore, in 
the part of the world out of which capital most ireely flows, cannot any longer 
remain so much inferior to the rate elsewhere, as it has hitherto been. 



644 BOOK III. CHAPTER XXIII. § 4 

§ 4.1 I have, thus far, considered loans, and the rate of interest, 
as a matter which concerns capital in general, in direct opposition 
to the popular notion, according to which it only concerns money. 
In loans, as in all other money transactions, I have regarded the 
money which passes, only as the medium, and commodities as the 
thing really transferred — the real subject of the transaction. And 
this is, in the main, correct : because the purpose for which, in the 
ordinary course of affairs, money is borrowed, is to acquire a pur- 
chasing power over commodities. In an industrious and commercial 
country, the ulterior intention commonly is, to employ the com- 
modities as capital : but even in the case of loans for unproductive 
consumption, as those of spendthrifts, or of the Grovernment, the 
amount borrowed is taken from a previous accumulation, which 
would otherwise have been lent to carry on productive industry ; 
it is, therefore, so much subtracted from what may correctly be 
called the amount of loanable capital. 

There is, however, a not unfrequent case, in which the purpose 
of the borrower is different from what I have here supposed. He 
may borrow money, neither to employ it as capital nor to spend it 
unproductively, but to pay a previous debt. In this case, what he 
wants is not purchasing power, but legal tender, or something which 
a creditor will accept as equivalent to it. His need is specifically 
for money, not for commodities or capital. It is the demand arising 
from this cause, which produces almost all the great and sudden 
variations of the rate of interest. Such a demand forms one of the 
earliest features of a commercial crisis. At such a period, many 
persons in business, who have contracted engagements, have been 
prevented by a change of circumstances from obtaining in time the 
means on which they calculated for fulfilUng them. These means 
they must obtain at any sacrifice, or submit to bankruptcy ; and 
what they must have is money. Other capital, however much of it 
they may possess, cannot answer the purpose unless money can 
first be obtained for it ; while, on the contrary, without any increase 
of the capital of the country,* a mere increase of circulating instru- 
ments of credit (be they of as little worth for any other purpose as 
the box of one pound notes discovered in the vaults of the Bank of 
England during the panic of 1825) will effectually serve their. turn 
if only they are allowed to make use of it. An increased issue of 
notes, in the form of loans, ns all that is required to satisfy the 

^ [The first three paragraphs of this section were added in the 6th ed. 
(1865).] 



RATE OF INTEREST 645 

demand, and put an end to the accompanying panic. But although, 
in this case, it is not capital, or purchasing power, that the borrower 
needs, but money as money, it is not only money that is transferred 
to him. The money carries its purchasing power with it wherever it 
goes ; and money thrown into the loan market really does, through 
its purchasing power, turn over an increased portion of the capital 
of the country into the direction of loans. Though money alone 
was wanted, capital passes ; and it may still be said with truth that 
it is by an addition to loanable capital that the rise of the rate of 
interest is met and corrected. 

Independently of this, however, there is a real relation, which 
it is indispensable to recognise, between loans and money. Loan- 
able capital is all of it in the form of money. Capital destined directly 
for production exists in many forms ; but capital destined for 
lending exists normally in that form alone. Owing to this circum- 
stance, we should naturally expect that among the causes which 
afEect more or less the rate of interest, would be found not only 
causes which act through capital, but some causes which act, directly 
at least, only through money. 

1 The rate of interest bears no necessary relation to the quantity 
or value of the money in circulation. The permanent amount of 
the circulating medium, whether great or small, affects only prices ; 
not the rate of interest. A depreciation of the currency, when it has 
become an accomplished fact, aSects the rate of interest in no 
manner whatever. It diminishes indeed the power of money to 
buy commodities, but not the power of money to buy money. I^ 
a hundred pounds will buy a perpetual annuity of four pounds a 
year, a depreciation which makes the hundred pounds worth only 
half as much as before, has precisely the same effect on the four 
pounds, and cannot therefore alter the relation between the two. 
The greater or smaller number of counters which must be used to 
express a given amount of real wealth, makes no difference in the 
position or interests of lenders or borrowers, and therefore makes no 
difference in the demand and supply of loans. There is the same 
amount of real capital lent and borrowed ; and if the capital in the 
hands of lenders is represented by a greater number of pounds 
sterling, the same greater number of pounds sterling will, in con- 
sequence of the rise of prices, be now required for the purposes to 
which the borrowers intend to apply them. 

1 [The text of this and the next seven paragraphs is an expansion in the 
6th ed. (1865) of two paragraphs of the earher editions.] 



646 BOOK III. CHAPTER XXIII. § 4 

But though the greater or less quantity of money makes in itself 
no difference in the rate of interest, a change from a less quantity to 
a greater, or from a greater to a less, may and does make a difference 
in it. 

Suppose money to be in process of depreciation by means of an 
inconvertible currency, issued by a government in payment of its 
expenses. This fact will in no way diminish the demand for real 
capital on loan ; but it will diminish the real capital loanable, 
because, this existing only in the form of money, the increase of 
quantity depreciates it. Estimated in capital, the amount offered 
is less, while the amount required is the same as before. Estimated 
in currency, the amount offered is only the same as before, while the~ 
amount required, owing to the rise of prices, is greater. Either 
way, the rate of interest must rise. So that in this case increase 
of currency really affects the rate of interest, but in the con- 
trary way to that which is generally supposed ; by raising, not by 
lowering it. 

The reverse will happen as the effect of calling in, or diminishing 
in quantity, a depreciated currency. The money in the hands of 
lenders, in common with all other money, will be enhanced in value, 
that is, there will be a greater amount of real capital seeking 
borrowers ; while the real capital wanted by borrowers will be only 
the same as before, and the money amount less : the rate of interest, 
therefore, will tend to fall. 

We thus see that depreciation, merely as such, while in process 
of taking place, tends to raise the rate of interest : and the expecta- 
tion of further depreciation adds to this effect ; because lenders who 
expect that their interest will be paid, and the principal perhaps 
redeemed, in a less valuable currency than they lent, of course 
require a rate of interest sufficient to cover this contingent 
loss. 

But this effect is more than counteracted by a contrary one, 
when the additional money is thrown into circulation not by pur- 
chases but by loans. In England, and in most other commercial 
countries, the paper currency in common use, being a currency 
provided by bankers, is all issued in the way of loans, except the 
part employed in the purchase of gold and silver. The same opera- 
tion, therefore, which adds to the currency also adds to the loans : 
the whole inciease of currency in the first instance swells the loan 
market. Considered as an addition to loans it tends to lower interest, 
more than in its character of depreciation it tends to raise it ; for 



RATE OF INTEREST 647 

the former effect depends on tlie ratio wHcli tlie new money bears 
to the money lent, while the latter depends on its ratio to all the 
money in circulation. An increase, therefore, of currency issued 
by banks, tends, while the process continues, to bring down or to 
keep down the rate of interest. A similar effect is produced by the 
increase of money arising from the gold discoveries ; almost the 
whole of which, as already noticed, is, when brought to Europe, 
added to the deposits in banks, and consequently to the amount of 
loans ; and when drawn out and invested in securities, liberates 
an equivalent amount of other loanable capital. The newly-arrived 
gold can only get itself invested, in any given state of business, by 
lowering the rate of interest ; and as long as the influx continues, it 
cannot fail to keep interest lower than, all other circumstances being 
supposed the same, would otherwise have been the case. 

As the introduction of additional gold and silver, which goes into 
the loan market, tends to keep down the rate of interest, so any 
considerable abstraction of them from the country invariably raises 
it ; even when occurring in the course of trade, as in paying for the 
extra importations caused by a bad harvest, or for the high-priced 
cotton which, under the influence of the American civil war, was 
imported from so many parts of the world. The money required 
for these payments is taken in the first instance from the deposits in 
the hands of bankers, and to that extent starves the fund that 
BuppUes the loan market. 

The rate of interest, then, depends essentially and permanently 
on the comparative amount of real capital offered and demanded 
in the way of loan ; but is subject to temporary disturbances of 
various sorts from increase and diminution of the circulating 
medium ; which derangements are somewhat intricate, and some- 
times in direct opposition to first appearances. All these distinctions 
are veiled over and confounded, by the unfortunate misapplication of 
language which designates the rate of interest by a phrase (" the 
value of money ") which properly expresses the purchasing power 
of the circulating medium. The pubhc, even mercantile, habitually 
fancies that ease in the money market, that is, faciUty of borrowing 
at low interest, is proportional to the quantity of money in circula- 
tion. Not only, therefore, are bank notes supposed to produce 
effects as currency, which they only produce as loans, but attention 
is habitually diverted from effects similar in kind and much greater 
in degree, when produced by an action on loans which does not 
happen to be accompanied by any action on the currency. 



648 BOOK III. CHAPTER XXIII. § 4 

For example, in considering tlie effect produced by the proceedings 
of banks in encouraging the excesses of speculation, an immense 
effect is usually attributed to their issues of notes, but until of late 
hardly any attention was paid to the management of their deposits ; 
though nothing is more certain than that their imprudent extensions 
of credit take place more frequently by means of their deposits than 
of their issues. " There is no doubt," says Mr. Tooke,* " that 
banks, whether private or joint stock, may, if imprudently con- 
ducted, minister to an undue extension of credit for the purpose of 
speculations, whether in commodities, or in over- trading in exports 
or imports, or in building or mining operations, and that they have 
so ministered not unfrequently, and in some cases to an extent 
ruinous to themselves, and without ultimate benefit to the parties 
to whose views their resources were made subservient." But, 
" supposing all the deposits received by a banker to be in coin, is 
he not, just as much as the issuing banker, exposed to the im- 
portunity of customers, whom it may be impohtic to refuse, for 
loans or discounts, or to be tempted by a high interest ? and may 
he not be induced to encroach so much upon his deposits as to leave 
him, under not improbable circumstances, unable to meet the 
demands of his depositors ? In what respect, indeed, would the 
case of a banker in a perfectly metallic circulation differ from that 
of a London banker at the present day ? He is not a creator of 
money, he cannot avail himself of his privilege as an issuer in aid of 
his other business, and yet there have been lamentable instances 
of London bankers issuing money in excess." 

In the discussions, too, which have been for so many years carried 
on respecting the operations of the Bank of England, and the effects 
produced by those operations on the state of credit, though for 
nearly half a century there never has been a commercial crisis which 
the Bank has not been strenuously accused either of producing or of 
aggravating, it has been almost universally assumed that the influ- 
ence of its acts was felt only through the amount of its notes in 
circulation, and that if it could be prevented from exercising any 
discretion as to that one feature in its position, it would no longer 
have any power Uable to abuse. This at least is an error which, after 
the experience of the year 1847, we may hope has been committed 
for the last time. During that year the hands of the bank were 
absolutely tied, in its character of a bank of issue ; but through its 

* Inquiry into the Currency Principle, ch. xiv. 



RATE OF INTEREST 649 

operations as a bank of deposit it exercised as great an influence, or 
apparent influence, on the rate of interest and the state of credit, as 
at any former period ; it was exposed- to as vehement accusations 
of abusing that influence ; and a crisis occurred, such as few 
that preceded it had equalled, and none perhaps surpassed, in 
intensity. 

§ 5. Before quitting the general subject of this chapter, I will 
make the obvious remark, that the rate of interest determines the 
value and price of all those saleable articles which are desired and 
bought, not for themselves, but for the income which they are 
capable of yielding. The pubhc funds, shares in joint-stock com- 
panies, and all descriptions of securities, are at a high price in pro- 
portion as the rate of interest is low. They are sold at the price 
which will give the market rate of interest on the purchase money, 
with allowance for all differences in the risk mcurred, or in any 
circumstance of convenience. Exchequer bills, for example, usually 
sell at a higher price than consols, proportionally to the interest 
which they yield ; because, though the security is the same, yet the 
former being annually paid off at par unless renewed by the holderj 
the purchaser (unless obliged to sell in a moment of general emer- 
gency), is in no danger of losing anything by the resale, except the 
premium he may have paid. 

The price of land, mines, and all other fixed sources of income, 
depends in Hke manner on the rate of interest. Land usually sells 
at a higher price, in proportion to the income afforded by it, than 
the pubUc funds, not only because it is thought, even in this country, 
to be somewhat more secure, but because ideas of power and dignity 
are associated with its possession. But these differences are constant, 
or nearly so ; and in the variations of price, land follows, cceteris 
farihuSj the permanent (though of course not the daily) variations 
of the rate of interest. When interest is low, land will naturally 
be dear ; when interest is high, land will be cheap. The last long 
war presented a striking exception to this rule, since the price of 
land as well as the rate of interest was then remarkably high. For 
this, however, there was a special cause. The continuance of a 
very high average price of corn for many years had raised the rent 
of land even more than in proportion to the rise of interest and fall 
of the selling price of fixed incomes. Had it not been for this accident, 
chiefly dependent on the seasons, land must have sustained as 
great a depreciation in value as the pubhc funds : which it probably 



650 BOOK III. CHAPTER XXIII. § 5 

would do, were a similar war to break out hereafter ; to tlie signal 
disappointment of those landlords and farmers who, generahzing 
from the casual circumstances of a remarkable period, so long 
persuaded themselves that a state of war was peculiarly advan- 
tageous, and a state of peace disadvantageous, to what they chose to 
call the interests of agriculture. 



CHAPTER XXIV 

OF THE REGULATION OF A CONVERTIBLE PAPER CURRENCY 

§ 1. The frequent recurrence during the last lialf century of 
the painful series of phenomena called a commercial crisis, has 
directed much of the attention both of economists and of practical 
politicians to the contriving of expedients for averting, or, at the 
least, mitigating its evils. And the habit which grew up during 
the era of the Bank restriction, of ascribing all alterations of high 
and low prices to the issues of banks, has caused inquirers in general 
to fix their hopes of success in moderating those vicissitudes upon 
schemes for the regulation of bank notes. A scheme of this nature, 
after having obtained the sanction of high authorities, so far estab- 
lished itself in the public mind, as to be, with general approba- 
tion, converted into a law, at the renewal of the Charter of the Bank 
of England in 1844 : and the regulation is still in force, though with 
a great abatement of its popularity, and with its prestige impaired 
by three ^ temporary suspensions, on the responsibility of the 
executive, the earliest little more than three years after its enact- 
ment. It is proper that the merits of this plan for the regulation of 
a convertible bank note currency should be here considered. Before 
touching upon the practical provisions of Sir Robert Peel's Act oi 
1844, 1 shall briefly state the nature, and examine the grounds, of the 
theory on which it is founded. 

It is beHeved by many, that banks of issue universally, or the 
Bank of England in particular, have a power of throwing their notes 
into circulation, and thereby raising prices, arbitrarily ; that this 
power is only Hmited by the degree of moderation with which they 
think fit to exercise it ; that when they increase their issues beyond 
the usual amount, the rise of prices, thus produced, generates a 
spirit of speculation in commodities, which carries prices still higher, 

^ [So from the 7th ed. (1871). In the original (1848) : " a temporary sus- 
pension " &c. ; in the 5th ed. (1862) : " two temporary ^suspensions."] 



652 BOOK III. CHAPTER XXIV. § 1 

and ultimately causes a reaction and recoil, amounting in extreme 
cases to a commercial crisis : and that every such crisis which has 
occurred in this country within mercantile memory, has been either 
or ginally produced by this cause, or greatly aggravated by it. To 
this extreme length the currency theory has not been carried by the 
eminent political economists who have given to a more moderate form 
of the same theory the sanction of their names. But I have not 
overstated the extravagance of the popular version ; which is a 
remarkable instance to what lengths a favourite theory will hurry, 
not the closet students whose competency in such questions is often 
treated with so much contempt, but men of the world and of business, 
who pique themselves on the practical knowledge which they have 
at least had ample opportunities of acquiring. Not only has this 
fixed idea of the currency as the prime agent in the fluctuations of 
price made them shut their eyes to the multitude of circumstances 
which, by influencing the expectation of suppiy, are the true causes 
of almost all speculations, and of almost all fluctuations of price ; 
but in order to bring about the chronologicax agreement required 
by their theory between the variations of bank issues and those of 
prices, they have played such fantastic tricks with facts and dates 
as would be thought incredible, if an eminent practica. authority 
had not taken the trouble of meeting them, on the ground of mere 
history, with an elaborate exposure. I refer, as all conversant with 
the subject must be aware, to Mr. Tooke's History of Prices. The 
result of Mr. Tooke's investigations was thus stated by himself, in 
his examination before the Commons' Committee on the Bank 
Charter question in 1832 ; and the evidences of it stand recorded in 
his book : " In point of fact, and historically, as far as my researches 
have gone, in every signal instance of a rise or fall of prices, the rise 
or fall has preceded, and therefore could not be the effect of, an 
enlargement or contraction of the bank circulation." 

The extravagance of the currency theorists, in attributing almost 
every rise or fall of prices to an enlargement or contraction of the 
issues of bank notes, has raised up, by reaction, a theory the extreme 
opposite of the former, of which, in scientific discussion, the most 
prominent representatives are Mr. Tooke and Mr. Fullarton. This 
counter- theory denies to bank notes, so long as their convertibility is 
maintained, any power whatever of raising prices, and to banks any 
power of increasing their circulation, except as a consequence of, 
and in proportion to, an increase of the business to be done. This 
last statement is supported by the unanimous assurances of all the 



REGULATION OF CURRENCY 653 

country bankers who have been examined before successive Parlia- 
mentary Committees on the subject. They all bear testimony that 
(in the words of Mr. FuUarton *) " the amount of their issues is 
exclusively regulated by the extent of local dealings and expenditure 
in their respective districts, fluctuating with the fluctuations of 
production and price, and that they neither can increase their issues 
beyond the limits which the range of such dealings and expenditure 
prescribes, without the certainty of having their notes immediately 
returned to them, nor diminish them, but at an almost equal cer- 
tainty of the vacancy being filled up from some other source." 
From these premises it is argued by Mr. Tooke and Mr. FuUarton 
that bank issues, since they cannot be increased in amount unless 
there be an increased demand, cannot possibly raise prices ; cannot 
encourage speculation, nor occasion a commercial crisis ; and that 
the attempt to guard against that evil by an artificial manage- 
ment of the issue of notes is of no efiect for the intended 
purpose, and liable to produce other consequences extremely 
calamitous. 

§ 2. As much of this doctrine as rests upon testimony, and not 
upon inference, appears to me incontrovertible. I give complete 
credence to the assertion of the country bankers very clearly and 
correctly condensed into a small compass in the sentence just quoted 
from Mr. FuUarton. I am convinced that they cannot possibly 
increase their issue of notes in any other circumstances than those 
which are there stated. I believe, also, that the theory, grounded 
by Mr. FuUarton upon this fact, contains a large portion of truth, 
and is far nearer to being the expression of the whole truth than 
any form whatever of the currency theory. 

There are two states of the markets : one which may be termed 
the quiescent state, the other the expectant, or speculative, state. 
The first is that in which there is nothing tending to engender in any 
considerable portion of the mercantUe pubUc a desire to extend their 
operations. The producers produce and the dealers purchase only 
their usual stocks, having no expectation of a more than usually rapid 
vent for them. Each person transacts his ordinary amount of 
business, and no more ; or increases it only in correspondence with 
the increase of his capital or connexion, or with the gradual growth 
of the demand for his commodity, occasioned by the public prosperity. 

* Begulation of Currencies p. 85, 



654 BOOK 111. CHAFTEK, XXIV. § 2 

Not meditating any unusual extension of their own operations, 
producers and dealers do not need more than the usual accom- 
jnodation from bankers and other money lenders ; and as it is only 
by extending their loans that bankers increase their issues, none 
but a momentary augmentation of issues is in these circumstances 
possible. If at a certain time of the year a portion of the public 
have larger payments to make than at other times, or if an indi- 
vidual, under some peculiar exigency, requires an extra advance, they 
may apply for more bank notes, and obtain them ; but the notes 
•will no more remain in circulation than the extra quantity of Bank 
of England notes which are issued once in every three months in pay- 
ment of the dividends. The person to whom, after being borrowed, 
the notes are paid away, has no extra payments to make, and no 
peculiar exigency, and he keeps them by him unused, or sends them 
into deposit, or repays with them a previous advance made to him by 
some banker : in any case he does not buy commodities with them, 
since by the supposition there is nothing to induce him to lay in a 
larger stock of commodities than before. ^Even if we suppose, as 
we may do, that bankers create an artificial increase of the demand 
for loans by ofiering them below the market rate of interest, the notes 
they issue will not remain in circulation ; for when the borrower, 
having completed the transaction for which he availed himself of 
them, has paid them away, the creditor or dealer who receives them, 
having no demand for the immediate use of an extra quantity of 
notes, sends them into deposit. In this case, therefore, there can be 
no addition, at the discretion of bankers, to the general circulating 
medium : any increase of their issues either comes back to them, or 
remains idle in the hands of the pubhc, and no rise takes place in 
prices. 

But there is another state of the markets, strikingly contrasted 
with the preceding, and to this state it is not so obvious that the 
theory of Mr. Tooke and Mr. FuUarton is appUcable ; namely, when 
an impression prevails, whether well founded or groundless, that the 
supply of one or more great articles of commerce is likely to fall 
short of the ordinary consumption. In such circumstances all 
persons connected with those commodities desire to extend their 
operations. The producers or importers desire to produce or import 
a larger quantity, speculators desire to lay in a stock in order to profit 
by the expected rise of price, and holders of the commodity desire 

^ [Sentence inserted in 5th ed. (1862).] 



rvXLiUUlJilJLUJlN UJD U U l:^I:^JliiN <J X DOO 



additional advances to enable them to continue holding. All these 
classes are disposed to make a more than ordinary use of their credit, 
and to this desire it is not denied that bankers very often unduly 
administer. Efiects of the same kind may be produced by any- 
thing which, exciting more than usual hopes of profit, gives increased 
briskness to business : for example, a sudden foreign demand for 
commodities on a large scale, or the expectation of it ; such as 
occurred on the opening of Spanish America to English trade, and 
has occurred on various occasions in the trade with the United States. 
Such occurrences produce a tendency to a rise of price in exportable 
articles, and generate speculations, sometimes of a reasonable, and 
(as long as a large proportion of men in business prefer excitement 
to safetj) frec[uently of an irrational or immoderate character. In 
such cases there is a desire in the mercantile classes, or in some 
portion of them, to employ their credit, in a more than usual 
degree, as a power of purchasing. This is a state of business which, 
when pushed to an extreme length, brings on the revulsion called a 
commercial crisis ; and it is a known fact that such periods of 
speculation hardly ever pass ofi without having been attended, 
during some part of their progress, by a considerable increase of 
bank notes. 

To this, however, it is replied by Mr. Tooke and Mr. Fullarton, 
that the increase of the circulation always follows instead of pre- 
ceding the rise of prices, and is not its cause, but its efiect. That 
in the first place, the speculative purchases by which prices are 
raised, are not efiected by bank notes but by cheques, or still more 
commonly on a simple book credit : and secondly, even if they were 
made with bank notes borrowed for that express purpose from 
bankers, the notes, after being used for that purpose, would, if not 
wanted for current transactions, be returned into deposit by the 
persons receiving them. Ija. this I fully concur, and I regard it 
as proved, both scientifically and historically, that during the 
ascending period of speculation, and as long as it is confined to 
transactions between dealers, the issues of bank notes are seldom 
materially increased, nor contribute anything to the speculative 
rise of prices. It seems to me, however, that this can no longer be 
affirmed when speculation has proceeded so far as to reach the pro- 
ducers. Speculative orders given by merchants to manufacturers 
induce them to extend their operations, and to become applicants to 
baaikers for increased advances, which, if m-ade in notes, are not paid 
away to persons who return them into deposit, but are partially 



656 BOOK III. CHAPTER XXIV. § 3 

expended in paying wages, and pass into the various channels of 
retail trade, where they become directly efiective in producing a 
further rise of prices. I cannot but think that this employment of 
bank notes must have been powerfully operative on prices at the 
time when notes of one and two pounds' value were permitted by 
law. Admitting, however, that the, prohibition of notes below five 
pounds has now rendered this part of their operation comparatively 
insignificant by greatly limiting their appHcabiHty to the payment 
of wages, there is another form of their instrumentaUty which comes 
into play in the latter stages of speculation, and which forms the 
principal argument of the more moderate supporters of the currency 
theory. Though advances by bankers are seldom demanded for 
the purpose of buying on speculation, they are largely demanded by 
unsuccessful speculators for the purpose of holding on ; and the 
competition of these speculators for a share of the loanable capital 
makes even those who have not speculated more dependent than 
before on bankers for the advances they require. Between the 
ascending period of speculation and the revulsion, there^is an interval 
extending to weeks and sometimes months, of gtrugghng against a 
fall. The tide having shown signs of turning, the speculative holders 
are unwilling to sell in a falhng market, and in the meantinie they 
require funds to enable them to fulfil even their ordinary engage- 
ments. It is this stage that is ordinarily marked by a considerable 
increase in the amount of the bank-note circulation. That such an 
increase does usually take place is denied by no one. And I think 
it must be admitted that this increase tends to prolong the duration 
of the speculations ; that it enables the speculative prices to be 
kept up for some time after they would otherwise have collapsed ; 
and therefore prolongs and increases the drain of the precious metals 
for exportation, which is the leading feature of this stage in the 
progress of a commercial crisis : the continuance of which drain at 
last endangering the power of the banks to fulfil their engagement 
of paying their notes on demand, they are compelled to contract 
their credit more suddenly and severely than would have been 
necessary if they had been prevented from propping up speculation 
by increased advances, after the time when the recoil had become 
inevitable. 

§ 3. To prevent this retardation of the recoil, and ultimate 
aggravation of its severity, is the object of the scheme for regulating 
the currency, of which Lord Overstone, Mr. Norman, and Colonel 



REGULATION OF CURRENCY 657 

Torrens, were tHe first promulgators, and wluch has, in a slightly 
modified form, been enacted into law.* 

According to the scheme in its original purity, the issue of 
promissory notes for circulation was to be confined to one body. In 
the form adopted by Parliament, all existing issuers were permitted 
to retain this privilege, but none were to be hereafter admitted to it, 
even in the place of those who might discontinue their issues : and, 
for all except the Bank of England, a maximum of issues was pre- 
scribed, on a scale intentionally low. To the Bank of England no 
maximu^i was fixed for the aggregate amount of its notes, but only 
for the portion issued on securities, or, in other words, on loan. 
These were never to exceed a certain limit, fixed in the first instance 
at fourteen millions."!* All issues beyond that amount mufet be in 
exchange for bullion; of which the Bank is bound to purchase, at a 
trifle below the Mint valuation, any quantity which is ofiered to it, 
giving its notes in exchange. In regard, therefore, to any issue of 
notes beyond the limit of fourteen millions, the Bank is purely 
passive, having no function but the compulsory one of giving 
its notes for gold at M. 17s. 9(Z., and gold for its notes at 

* [1857] I think myself justified in affirming that the mitigation of com- 
mercial revulsions is the real, and only serious, purpose of the Act of 1844. I 
am quite aware4<hat its supporters insist (especially since 1847) on its supreme 
efficacy in " maintaining the convertibility of the Bank note." But I must be 
excused for not attaching any serious importance to this one among its alleged 
merits. The convertibility of the Bank note was maintained, and would have 
continued to be maintained, at whatever cost, under the old system. As was 
well said by Lord Overstone in his evidence, the Bank can always, by a 
sufficiently violent action on credit, save itself at the expense of the mercantile 
public. Thakt t"he Act of 1844 mitigates the violence of that process, is a 
sufficient claim to prefer in its behalf. Besides, if we suppose such a degree 
of mismanagement on the part of the Bank, as, were it not for the Act, would 
endanger the continuance or convertibility, the same (or a less) degree of mis- 
management, practised under the Act, would suffice to produce a suspension of 
payments by the Banking Department ; an event which the compulsory 
separation of the two departments brings much nearer to possibility than it was 
before, and which, involving as it would the probable stoppage of every private 
banking establishment in London, and perhaps also the non-payment of the 
dividends to the national creditor, would be a far greater immediate calamity 
than a brief interruption of the convertibility of the note ; insomuch that, to 
enable the Bank to resume payment of its deposits, no Government would 
hesitate a moment to suspend payment of the notes, if suspension of the Act 
of 1844 proved insufficient. 

f A conditional increase of this maximum is permitted, but only when by 
arrangement with any country bank the issues of that bank are discontinued, 
and Bank of England notes substituted ; and even then the increase is limited 
to two-thirds of the amount of the country notes to be thereby superseded. 
Under this provision the amount of notes which the Bank of England is now 
[1871] at liberty to issue against securities, is about fifteen millions. 



668 JBUUIL iU. UHAriEK XXiV. § 3 

SI. 17s. lOJdJ., whenever and by whomsoever it is called upon 
to do so. 

The object for which this mechanism is intended is that the 
bank-note currency may vary in its amount at the exact times, and 
in the exact degree, in which a purely metallic currency would vary. 
And the precious metals being the commodity that has hitherto 
approached nearest to that invariability, in all the circumstances 
influencing value, which fits a commodity for being adopted as a 
medium of exchange, it seems to be thought that the excellence of 
the Act of 1844 is fully made out, if under its operation the issues 
conform in all their variations of quantity, and therefore, as is 
inferred, of value, to the variations which would take place in a 
currency wholly metallic. 

1 Now, all reasonable opponents of the Act, in common with its 
supporters, acknowledge as an essential requisite of any substitute 
for the precious metals, that it should conform exactly in its per- 
manent value to a metallic standard. And they say, that so long 
as it is convertible into specie on demand, it does and must so con- 
form. But when the value of a metallic or of any other currency is 
spoken of, there are two points to be considered ; the permanent or 
average value, and the fluctuations. It is to the permanent value of 
a metallic currency that the value of a paper currency ought to 
conform. But there is no obvious reason why it should be required 
to conform to the fluctuations too. The only object of its 
conforming at all is steadiness of value ; and with respect to fluctu- 
ations the sole thing desirable is that they should be the smallest 
possible. Now the fluctuations in the value of the currency are 
determined, not by its quantity, whether it consist of gold or of 
paper, but by the expansions and contractions of credit. To dis- 
cover, therefore, what currency wiU conform the most nearly to the 
permanent value of the precious metals, we must find under what 
currency the variations in credit are least frequent and least extreme. 
Now, whether this object is best attained by a metallic currency 
(and therefore by a paper currency exactly conforming in quantity 
to it) is precisely the question to be decided. If it should prove 
that a paper currency which follows all the fluctuations in quantity 
of a metallic, leads to more violent revulsions of credit than one 
which is not held to this rigid conformity, it will follow that the 
currency which agrees most exactly in quantity with a metallic 
currency is not that which adheres closest to its value ; that is 

^ [Paragraph inserted in 4t]i ed. (1857).] 



BEGULATION OF CURRENCY 659 

to say, its permanent value, with wliich alone agreement is 
desirable. 

Whether this is really the case or not we will now inquire. And 
first, let us consider whether the Act effects the practical object 
chiefly relied on in its defence by the more sober of its advocates, 
that of arresting speculative extensions of credit at an earlier period, 
with a less drain of gold, and consequently by a milder and more 
gradual process. I think it must be admitted that to a certain degree 
it is successful in this object. 

I am aware of what may be urged, and reasonably urged, in 
opposition to this opinion. It may be said, that when the time 
arrives at which the banks are pressed for increased advances to 
enable speculators to fulfil their engagements, a limitation of the 
issue of notes will not prevent the banks, if otherwise willing, from 
making these advances ; that they have still their deposits as a 
source from which loans may be made beyond the point which is 
consistent with prudence as bankers ; and that even if they refused 
to do so, the only effect would be that the deposits themselves would 
be drawn out to supply the wants of the depositors ; which would 
be just as much an addition to the bank notes and coin in the hands 
of the public, as if the notes themselves were increased. This is 
true, and is a sufficient answer to those who think that the advances 
of banks to prop up faihng speculations are objectionable chiefly as 
an increase of the currency. But the mode in which they are really 
objectionable, is as an extension of credit, i If, instead of increasing 
their discounts, the banks allow their deposits to be drawn out, there 
is the same increase of currency (for a short time at least), but there 
is not an increase of loans, at the time when there ought to be a 
diminution. If they do increase their discounts, not by means of 
notes, but at the expense of the deposits alone, their deposits 
(properly so called) are deflnite and exhaustible, while notes may be 
increased to any amount, or, after being returned, may be reissued 
without Hmit. It is true that a bank, if willing to add indefinitely 
to its liabihties, has the power of making its nominal deposits as 

* [The present text of the remainder of this paragraph dates only from 
the 6th ed. (1865). The original simply ran : " If, instead of lending their 
notes, the banks allow the demand of their customers for disposable capital 
to act on the deposits, there is the same increase of currency, (for a short time 
at least,) but there is not an increase of loans. The rate of interest, therefore, 
is not prevented from rising at the first moment when the difficulties consequent 
on excess of speculation begin to be felt. Speculative holders," &c. No change 
was made in this before 1865, except the insertion of the words " On the 
contrary . . . interest " before the last sentence in the 4th ed. (1857),] 



660 BOOK III. CHAPTER XXIV. § 3 

unlimited a fund as its issues could be ; it has only to make its 
advances in a book credit, wMcli is creating deposits out of its 
own liabilities, tlie money for wbicli it has made itself responsible 
becoming a deposit in its hands, to be drawn against by cheques ; 
and the cheques when drawn may be liquidated (either at the same 
bank or at the clearing house) without the aid of notes, by a mere 
transfer of credit from one account to another. I apprehend it is 
chiefly in this way that undue extensions of credit, in periods of 
speculation, are commonly made. But the banks are not likely to 
persist in this course when the tide begins to turn. It is not when 
their deposits have already begun to flow out, that they are likely 
to create deposit accounts which represent, instead of funds placed 
in their hands, fresh Habilities of their own. But experience proves 
that extension of credit, when in the form of notes, goes on long after 
the recoil from over-speculation has commenced. When this mode 
of resisting the revulsion is made impossible, and deposits and book 
credits are left as the only sources from which undue advances can 
be made, the rate of interest is not so often, or so long, prevented 
from rising, after the difficulties consequent on excess of speculatioii 
begin to be felt. On the contrary, the necessity which the banks feel 
of diminishing their advances to maintain their solvency, when they 
find their deposits flowing out, and cannot supply the vacant place 
by their own notes, accelerates the rise of the rate of interest. Specula- 
tive holders are therefore obliged to submit earlier to that loss by 
resale, which could not have been prevented from coming on them at 
last : the recoil of prices and collapse of general credit take place 
sooner. 

To appreciate the effects which this acceleration of the crisis 
has in mitigating its intensity, let us advert more particularly to the 
nature and effects of that leading feature in the period just pre- 
ceding the collapse, the drain of gold. A rise of prices produced by 
a speculative extension of credit, even when bank notes have not 
been the instrument, is not the less effectual (if it lasts long enough) 
in turning the exchanges : and when the exchanges have turned 
from this cause, they can only be turned back, and the drain of gold 
stopped, either by a fall of prices or by a rise of the rate of interest. 
A fall of prices will stop it by removing the cause which produced it, 
and by rendering goods a more advantageous remittance than gold, 
even for paying debts already due. A rise of the rate of interest, 
and consequent fall of the prices of securities, will accomplish the 
purpose still more rapidly, by inducing foreigners, instead of taking 



REGULATION OF CURRENCY 661 

away the gold whicli is due to them, to leave it for investment within 
the country, and even send gold into the country to take advantage 
of the increased rate of interest. Of this last mode of stopping a 
drain of gold, the year 1847 afforded signal examples. But until one 
of these two things takes place — until either prices fall, or the rate 
of interest rises — nothing can possibly arrest, or even moderate, the 
efflux of gold. Now, neither will prices fall nor interest rise, so long 
as the unduly expanded credit is upheld by the continued advances of 
bankers. It is well known that when a drain of gold has set in, even 
if bank notes have not increased in quantity, it is upon them that 
the contraction first falls, the gold wanted for exportation being 
always obtained from the Bank of England in exchange for its notes. 
But under the system which preceded 1844, the Bank of England, 
being subjected, in common with other banks, to the importunities 
for fresh advances which are characteristic of such a time, could, and 
often did, immediately re-issue the notes which had been returned 
to it in exchange for bullion. It is a great error, certainly, to suppose 
that the mischief of this re-issue chiefly consisted in preventing a 
contraction of the currency. It was, however, quite as mischievous 
as it has ever been supposed to be. As long as it lasted, the efflux 
of gold could not cease, since neither would prices fall nor interest 
rise while these advances continued. Prices, having risen without 
any increase of bank notes, could weU have fallen without a diminu- 
tion of them ; but having risen in consequence of an extension of 
credit, they could not fall without a contraction of it. As long, 
therefore, as the Bank of England and the other banks persevered 
in this course, so long gold continued to flow out, until so little was 
left that the Bank of England, being in danger of suspension of 
payments, was compelled at last to contract its discounts so greatly 
and suddenly as to produce a much more extreme variation in the 
rate of interest, inflict much greater loss and distress on individuals, 
and destroy a much greater amount of the ordinary credit of the 
country, than any real necessity required. 

I acknowledge (and the experience of 1847 has proved to those 
who overlooked it before) that the mischief now described may be 
wrought, and in large measure, by the Bank of England, through its 
deposits alone. It may continue or even increase its discounts and 
advances, when it ought to contract them ; with the ultimate effect 
of making the contraction much more severe and sudden than 
necessary. I cannot but think, however, that banks which commit 
this error with their deposits, would commit it still more if they were 



662 BOOK III. CHAPTER XXIV. § 4 

at liberty to make increased loans with their issues as well as their 
deposits. I am compelled to think that the being restricted from 
increasing their issues, is a real impediment to their making those 
advances which arrest the tide at its turn, and make it rush hke a 
torrent afterwards "^ : and when the Act is blamed for interposing 
obstacles at a time when not obstacles but facihties are needed, it 
must in justice receive credit for interposing them when they are 
an acknowledged benefit. In this particular, therefore, I think it 
cannot be denied, that the new system is a real improvement upon 
the old. 

§ 4. But however this may be, it seems to me certain that 
these advantages, whatever value may be put on them, are pur- 
chased by still greater disadvantages. 

In the first place, a large extension of credit by bankers, though 
most hurtful when, credit being already in an inflated state, it can 
only serve to retard and aggravate the collapse, is most salutary 
when the collapse has come, and when credit instead of being in 
excess is in distressing deficiency, and increased advances by bankers, 
instead of being an addition to the ordinary amount of floating 
credit, serve to replace a mass of other credit which has been suddenly 
destroyed. Antecedently to 1844, if the Bank of England occa- 
sionally aggravated the severity of a commercial revulsion by 
rendering the collapse of credit more tardy and hence more violent 
than necessary, it in return rendered invaluable services during the 
revulsion itself, by coming forward with advances to support solvent 
firms, at a time when all other paper and almost all mercantile credit 

1 [From the 6th ed. (1865) disappeared the following lines and the accom- 
panying footnote, which had remained since 1848 : 

" If the restrictions of the Act of 1844 were no obstacle to the advances of 
banks in the interval preceding the crisis, why were they found an insuperable 
obstacle during the crisis ? an obstacle which nothing less could overcome 
than a suspension of the law, through the assumption by the Government of a 
temporary dictatorship ? Evidently they were an obstacle." 

Footnote. — "It would not be to the purpose to say, by way of objection, that 
the obstacle may be eyaded by granting the increased advance in book credits, 
to be drawn against by cheques, without the aid of bank notes. This is indeed 
possible, as Mr. Fullarton has remarked, and as I have myself said in a former 
chapter. But this substitute for bank note currency certainly has not yet been 
organised ; and the law having clearly manifested its intention that, in the case 
supposed, increased credits should not be granted, it is yet a problem whether 
the law would not reach what might be regarded as an evasion of its prohibi- 
tions, or whether deference to the law would not produce (as it has hitherto 
done), on the part of banking establishments, conformity to its spirit and 
purpose, as well as to its mere letter."] 



REGULAnON OF CURRENCY 663 

had become comparatively valueless. This service was eminently 
conspicuous in tlie crisis of 1825-6, the severest probably ever 
experienced ; during whicli the Bank increased what is caUed its 
circulation by many millions, in advances to those mercantile firms 
of whose ultimate solvency it felt no doubt ; advances which if it 
had been obHged to withhold, the severity of the crisis would have 
been still greater than it was. If the Bank, it is justly remarked by 
Mr. Fullarton,* compHes with such apphcations, " it must comply 
with them by an issue of notes, for notes constitute the only instru- 
mentahty through which the Bank is in the practice of lending its 
credit. But those notes are not intended to circulate, nor do they 
circulate. There is no more demand for circulation than there was 
before. On the contrary, the rapid decUne of prices which the case 
in supposition presumes, would necessarily contract the demand for 
circulation. The notes would either be returned to the Bank of 
England as fast as they were issued, in the shape of deposits, or 
would be locked up in the drawers of the private London bankers, 
or distributed by them to their correspondents in the country, or 
intercepted by other capitalists, who, during the fervour of the 
previous excitement, had contracted Habilities which they might 
be imperfectly prepared on the sudden to encounter. In such 
emergencies, every man connected with business, who has been 
trading on other means than his own, is placed on the defensive, and 
his whole object is to make himself as strong as possible, an object 
which cannot be more efiectually answered than by keeping by him 
as large a reserve as possible in paper which the law has made a legal 
tender. The notes themselves never find their way into the pro- 
duce market ; and if they at all contribute to retard " (or, as I 
should rather say, to moderate) " the fall of prices, it is not by 
promoting in the shghtest degree the efiective demand for com- 
modities, not by enabling consumers to buy more largely for con- 
sumption, and so giving briskness to commerce, but by a process 
exactly the reverse, by enabhng the holders of commodities to hold 
on, by obstructing traffic and repressing consumption." 

The opportune relief thus afforded to credit, during the excessive 
contraction which succeeds to an undue expansion, is consistent with 
the principle of the new system ; for an extraordinary contraction 
of credit, and fall of prices, inevitably draw gold into the country, 
and the principle of the system is that the bank-note currency shall 
be permitted, and even compelled, to enlarge itself, in all cases in 

* P. 106. 



664 BOOK III. CHAPTER XXIV. § 4 

which a metallic currency would do the same. But, what the 
principle of the law would encourage, its provisions in this instance 
preclude, by not suffering the increased issues to take place until 
•the gold has actually arrived : which is never until the worst part 
of the crisis has passed, and almost all the losses and failures attend- 
ant on it are consummated. The machinery of the system withholds, 
until for many purposes it comes too late, the very medicine which 
the theory of the system prescribes as the appropriate remedy.* 

This function of banks in filling up the gap made in mercantile 
credit by the consequences of undue speculation and its revulsion, is 
so entirely indispensable, that if the Act of 1844 continues unrepealed, 
there can be no difficulty in foreseeing that its provisions must be 
suspended, as they were in 1847, in every period of great commercial 
difficulty, as soon as the crisis has really and completely set in.| 
Were this all, there would be no absolute inconsistency m maintain- 
ing the restriction as a means of preventing a crisis, and relaxing it 
for the purpose of relieving one. But there is another objection, 
of a stiU more radical and comprehensive character, to the new 
system. 

Professing, in theory, to require that a paper currency shall vary 
in its amount in exact conformity to the variations of a metallic 
currency, it provides, in fact, that in every case of an efflux of gold, 
a corresponding diminution shall take place in the quantity of bank 
notes ; in other words, that every exportation of the precious metals 
shall be virtually drawn from the circulation ; it being assumed 
that this would be the case if the currency were wholly metallic. 
This theory, and these practical arrangements, are adapted to the 
case in which the drain of gold originates in a rise of prices produced 
by an undue expansion of currency or credit ; but they are adapted 
to no case beside. 

When the efflux of gold is the last stage of a series of effects 
arising from an increase of the currency, or from an expansion of 
credit tantamount in its effect on prices to an increase of currency, 

* [1857] True, the Bank is not precluded from making increased advances 
from its deposits, which are likely to be of unusually large amount, since, at 
these periods, every one leaves his money in deposit in order to have it within 
call. But, that the deposits are not always sufficient was conclusively proved 
in 1847, when the Bank stretched to the very utmost the means of relieving 
commerce which its deposits afforded, without allaying the panic, which how- 
ever ceased at once when the Government decided on suspending the Act. 

t [1862] This prediction was verified on the very next occurrence of a 
commercial crisis, in 1857 ; when Government were again under the necessity 
of suspending, on their own responsibility, the provisions of the Act. 



REGULATION OF CURRENCY 665 

it is in tliat case a fair assumption tliat in a. purely metallic system 
the gold exported would be drawn from the currency itself ; because 
such a drain, being in its nature unlimited, will necessarily continue 
as long as currency and credit are undiminished. But an exportation 
of the precious metals often arises from no causes afiecting currency 
or credit, but simply from an unusual extension of foreign payments, 
arising either from the state of the markets for commodities, or 
from some circumstance not commercial. In this class of causes, four, 
of powerful operation, are included, of each of which the last fifty 
years of English history afford repeated instances. The first is 
that of an extraordinary foreign expenditure by government, either 
poUtical or military ; as in the revolutionary war, and, as long as it 
lasted, during the Crimean war. The second is the case of a large 
exportation of capital for foreign investment ; such as the loans and 
mining operations which partly contributed to the crisis of 1825, and 
the American speculations which were the principal cause of the 
crisis of 1839. The third is a failure of crops in the countries which 
supply the raw material of important manufactures ; such as the 
cotton failure in America, which compelled England, in 1847, to 
incur unusual liabilities for the purchase of that commodity at an 
advanced price. The fourth is a bad harvest, and a great consequent 
importation of food; of which the years 1846 and 1847 presented 
an example surpassing all antecedent experience. 

In none of these cases, if the currency were metallic, would 
the gold or silver exported for the purposes in question be necessarily, 
or even probably, drawn wholly ^ from the circulation. It would 
be drawn from the hoards, which under a metallic currency always 
exist to a very large amount ; in uncivilized countries, in the hands 
of all who can afford it ; in civilized countries chiefly in the form 
of bankers' reserves. Mr. Tooke, in his Inquiry into the Currency 
Principle, bears testimony to this fact ; but it is to Mr. FuUarton 
that the pubHc are indebted for the clearest and most satisfactory 
elucidation of it. As I am not aware that this part of the theory 
of currency has been set forth by any other writer with anything 
like the same degree of completeness, I shall quote somewhat largely 
from this able production. 

" No person who has ever resided in an Asiatic country, where 

hoarding is carried on to a far larger extent in proportion to the 

existing stock of wealth, and where the practice has become much 

more deeply engrafted in the habits of the people, by traditionary 

1 [" Wholly " inserted in 4th ed. (1857).] 



666 BOOK III. CHAPTER XXIV. § 4 

appreliensions of insecurity and tlie difficulty of finding safe and 
remunerative investments, tlian in any European community — no 
person wlio has had personal experience of this state of society, can 
be at a loss to recollect innumerable instances of large metallic 
treasures extracted in times of pecuniary difficulty from the coffers 
of individuals by the temptation of a high ^rate of interest, and 
brought in aid of the public necessities, nor, on the other hand, of 
the facility with which those treasures have been absorbed again, 
when the inducements which had drawn them into light were no 
longer in operation. In countries more advanced in civiUzation 
and wealth than the Asiatic principaHties, and where no man is in 
fear of attracting the cupidity of power by an external display of 
riches, but where the interchange of commodities is still almost 
universally conducted through the medium of a metallic circulation, 
as is the case with most of the commercial countries on the Continent 
of Europe, the motives for amassing the precious metals may be 
less powerful than in the majority of Asiatic principalities ; but the 
ability to accumulate being more widely extended, the absolute 
quantity amassed will be found probably to bear a considerably 
larger proportion to the population.* In those states which lie 
exposed to hostile invasion, or whose social condition is unsettled 
and menacing, the motive indeed must still be very strong ; and in 
a nation carrying on an extensive commerce, both foreign and internal, 
without any considerable aid from any of the banking substitutes for 
money, the reserves of gold and silver indispensably required to 
secure the regularity of payments, must of themselves engross a 
share of the circulating coin which it would not be easy to estimate. 
" In this country, where the banking system has been carried to 
an extent and perfection unknown in any other part of Europe, and 
may be said to have entirely superseded the use of coin, except for 
retail dealings and the purposes of foreign commerce, the incentives 
to private hoarding exist no longer, and the hoards have all been 
transferred to the banks, or rather, I should say, to the Bank of 
England. But in France, where the bank-note circulation is still 
comparatively limited, the quantity of gold and silver coin in 
existence I find now currently estimated, on what are described as 

* It is known, ^rom unquestionable facts, that tlie hoards of money at all 
times existing in the hands of the French peasantry, often from a remote date, 
surpass any amount which could have been imagined possible ; and even in 
so poor a country as Ireland, it has of late been ascertained that the small 
farmers sometimes possess hoards quite disproportioned to their visible means 
of subsistence^ 



REGULATION OF CURRENCY - 667 

the latest authorities, at the enormous sum of 120 millions sterhng ; 
nor is the estimate at all at variance with the reasonable probabiHties 
of the case. Of this vast treasure there is every reason to presume 
that a very large proportion, probably by much the greater part, 
is absorbed in the hoards. If you present for payment a bill for a 
thousand francs to a French banker, he brings you the silver in a 
sealed bag from his strong room. And not the banker only, but 
every merchant and trader, according to his means, is under the 
necessity of keeping by him a stock of cash sufficient not only for 
his ordinary disbursements, but to meet any unexpected demands. 
That the quantity of specie accumulated in these innumerable 
depots, not in France only, but all over the Continent, where banking 
institutions are still either entirely wanting or very imperfectly 
organized, is not merely immense in itself, but admits of being 
largely drawn upon, and transferred even in vast masses from one 
country to another, with very Httle, if any, effect on prices, or other 
material derangements, we have had some remarkable proofs : " 
among others, " the signal success which attended the simultaneous 
efforts of some of the principal European powers (Russia, Austria, 
Prussia, Sweden, and Denmark) to replenish their treasuries, and 
to replace with coin a considerable portion of the depreciated paper 
which the necessities of the war had forced upon them, and this at 
the very time when the available stock of the precious metals over 
the world had been reduced by the exertions of England to recover 
her metallic currency. . . . There can be no doubt that these 
combined operations were on a scale of very extraordinary magnitude, 
that they were accomplished without any sensible injury to com- 
merce or public prosperity, or any other effect than some temporary 
derangement of the exchanges, and that the private hoards of 
treasure accumulated throughout Europe during the war must have 
been the principal source from which all this gold and silver was 
collected. And no person, I think, can fairly contemplate the 
vast superflux of metallic wealth thus proved to be at all times in 
existence, and, though in a dormant and inert state, always ready 
to spring into activity on the first indication of a sufficiently intense 
demand, without feeling themselves compelled to admit the possi- 
bility of the mines being even shut up for years together, and the 
production of the metals altogether suspended, while there might 
be scarcely a perceptible alteration in the exchangeable value of the 
metal." * 
• * Regulation of Currencies, pp. 71-4. 



668 BOOK III. CHAPTER XXIV. § 4 

Applying this to tlie currency doctrine and its advocates, " one 
might imagine," says Mr. FuUarton,* " that they supposed the gold 
which is drained off for exportation from a country using a currency 
exclusively metalHc, to be collected by driblets at the fairs and 
markets, or from the tills of the grocers and mercers. They never 
even allude to the existence of such a thing as a great hoard of the 
metals, though upon the action of the hoards depends the whole 
economy of international payments between specie-circulating 
communities, while any operation of the money collected in hoards 
upon prices must, even according to the currency hypothesis, be 
wholly impossible. We know from experience what enormous 
payments in gold and silver specie-circulating countries are capable, 
at times, of making, without the least disturbance of their internal 
prosperity ; and whence is it supposed that these payments come, 
but from their hoards ? Let us think how the money market of a 
country transacting all its exchanges through the medium of the 
precious metals only, would be likely to be affected by the necessity 
of making a foreign payment of several milHons. Of course the 
necessity could only be satisfied by a transmission of capital ; and 
would not the competition for the possession of capital for trans- 
mission which the occasion would call forth, necessarily raise the 
market rate of interest ? If the payment was to be made by the 
government, would not the government, in all probability, have to 
open a new loan on terms more than usually favourable to the 
lender ? " If made by merchants, would it not be drawn either 
from the deposits in banks, or from the reserves which merchants 
keep by them in default of banks, or would it not obUge them to 
obtain the necessary amount of specie by going into the money 
market as borrowers ? " And would not all this inevitably act upon 
the hoards, and draw forth into activity a portion of the gold and 
silver which the money-dealers had been accumulating, and some of 
them with the express view of watching such opportunities for 
turning their treasures to advantage ? . . . 

" To come to the present time [1844], the balance of payments 
with nearly all Europe has for about four years past been in favour 
of this country, and gold has been pouring in till the influx amounts 
to the unheard-of sum of about fourteen milHons sterUng. Yet, in 
all this time, has any one heard a complaint of any serious suffering 
inflicted on the people of the Continent ? Have prices there been 

* Regulation of Currencies, pp. 139-42. 



REGULATION OF CURRENCY 669 

greatly depressed beyond their range in this country ? Have 
wages fallen, or have merchants been extensively ruined by the 
universal depreciation of their stock ? There has occurred nothing 
of the kind. The tenor of commercial and monetary affairs has been 
everywhere even and tranquil ; and in France more particularly, 
an improving revenue and extended commerce bear testimony to 
the continued progress of internal prosperity. It may be doubted, 
indeed, if this great efflux of gold has withdrawn, from that portion 
of the metallic wealth of the nation which really circulates, a single 
napoleon. And it has been equally obvious, from the undisturbed 
state of credit, that not only has the supply of specie indispensable 
for the conduct of business in the retail market been all the "while 
uninterrupted, but that the hoards have continued to furnish every 
facihty requisite for the regularity of mercantile payments. It is 
of the very essence of the metallic system, that the hoards, in all 
cases of probable occurrence, should be equal to both objects ; that 
they should, in the first place, supply the bullion demanded for 
exportation, and in the next place, should keep up the home circu- 
lation to its legitimate complement. Every man trading under that 
system, who, in. the course of his business, may have frequent 
occasion to remit large sums in specie to foreign countries, must 
either keep by him a sufficient treasure of his own or must have 
the means of borrowing enough from his neighbours, not only to 
make up when wanted the amount of his remittances, but to enable 
him, moreover, to carry on his ordinary transactions at home 
without interruption." 

In a country in which credit is carried to so great an extent 
as in England, one great reserve, in a single estabhshment, the Bank 
of England, supplies the place, as far as the precious metals are 
concerned, of the multitudinous reserves of other countries. The 
theoretical principle, therefore, of the currency doctrine would 
require, that all those drains of the metal which, if the currency 
were purely metallic, would be taken from the hoards, should be 
allowed to operate freely, upon the reserve in the coffers of the Bank 
of England, without any attempt to stop it either by a diminution 
of the currency or by a contraction of credit. Nor to this would 
there be any well-grounded objection, unless the drain were so great 
as to threaten the exhaustion of the reserve, and a consequent 
stoppage of payments ; a danger against which it is possible to take 
adequate precautions, because in the cases which we are considering, 
the drain is for foreign payments of definite amount, and stops of 



670 BOOK III. CHAPTER XXIV. § 4 

itself as soon as these are effected. And in all systems it is admitted 
that the habitual reserve of the Bank should exceed the utmost 
amount to which experience warrants the belief that such a drain 
may extend ; which extreme limit Mr. Fullarton affirms to be seven 
millions, but Mr. Tooke recommends an average reserve of ten, and 
in his last publicatiouj of twelve milhons. ^ Under these circum- 
stances, the habitual reserve, which would never be employed in 
discounts, but kept to be paid out exclusively in exchange for 
cheques or bank notes, would be sufficient for a crisis of this descrip- 
tion ; which therefore would pass off without having its difficulties 
increased by a contraction either of credit or of the circulation. 
But this, the most advantageous denouement that the case admits of, 
and not only consistent with but required by the professed principle 
of the system, the panegyrists of the system claim for it as a great 
merit that it prevents. They boast, that on the first appearance 
of a drain for exportation — whatever may be its cause, and whether, 
under a metallic currency, it would involve a contraction of credit 
or not — the Bank is at once obhged to curtail its advances. And 
this, be it remembered, when there has been no speculative rise 
of prices which it is indispensable to correct, no unusual extension 
of credit requiring contraction ; but the demand for gold is solely 
occasioned by foreign payments on account of government, or large 
corn importations consequent on a bad harvest. 

2 Even supposing that the reserve is insufficient to meet the 
foreign payments, and that the means wherewith to make them have 
to be taken from the loanable capital of the country, the consequence 
of which is a rise of the rate of interest ; in such circumstances some 
pressure on the money market is unavoidable, but that pressure is 
much increased in severity by the separation of the Banking from 
the Issue Department. The case is generally stated as if the Act only 
operated in one way, namely, by preventing the Bank, when it has 

1 [The rest of this paragraph replaced in the 6th ed. (1865) the following 
passage of the original text : 

" The machinery, however, of the new system insists upon bringing about 
by force, what its principle not only does not require, but positively condemns. 
Every drain for exportation, whatever may be its cause, and whether under a 
metallic currency it would affect the circulation or not, is now compulsorily 
drawn from that source alone. The bank-note circulation, and the discounts 
or other advances of the Bank, must be diminished by an amount equal to that 
of the metal exported, though it be to the full extent of seven or ten millions. 
And this, be it remembered," &e.] 

2 [From this point to the end of the section the text was largely rewritten 
in the 4th ed, (1857), and the note added in the 5th (1862).] 



REGULATION OF CURRENCY 671 

parted with (say) three millions of bullion in exchange for three 
millions of its notes, from again lending those notes, in discounts or 
other advances. But the Act really does much more than this. 
It is well known, that the first operation of a drain is always on the 
Banking Department. The bank deposits constitute the bulk of the 
unemployed and disposable capital of the country ; and capital 
wanted for foreign payments is almost always obtained mainly by 
drawing out deposits. Supposing three millions to be the amount 
wanted, three millions of notes are drawn from the Banking Depart- 
ment (either directly or through the private bankers, who keep the 
bulk of their reserves with the Bank of England), and the three 
millions of notes, thus obtained, are presented at the Issue Depart- 
ment, and exchanged against gold for exportation. Thus a drain 
upon the country at large of only three millions is a drain upon the 
Bank virtually of six milHons. The deposits have lost three millions, 
and the reserve of the Issue Department has lost an equal amount. 
As the two departments, so long as the Act remains in operation, 
cannot even in the utmost extremity help one another, each must 
take its separate precautions for its own safety. Whatever measures, 
therefore, on the part of the Bank, would have been required under 
the old system by a drain of six millions, are now rendered necessary 
by a drain only of three. The Issue Department protects itself 
in the manner prescribed by the Act, by not re-issuing the three 
millions of notes which have been returned to it. But the Banking 
Department must take measures to replenish its reserve, which has 
been reduced by three miUions. Its liabiUties having also decreased 
three millions, by the loss of that amoimt of deposits, the reserve, 
on the ordinary banking principle of a third of the UabiUties, will 
bear a reduction of one million. But the other two millions it must 
procure by letting that amount of advances run out, and not renewing 
them. Not only must it raise its rate of interest, but it must effect, 
by whatever means, a diminution of two millions in the total amount 
of its discounts : or it must seU securities to an equal amount. 
This violent action on the money market for the purpose of reple- 
nishing the Banking reserve, is wholly occasioned by the Act of 
1844. If the restrictions of that Act did not exist, the Bank, instead 
of contracting its discounts, would simply transfer two millions, 
either in gold or in notes, from the Issue to the Banking Department ; 
not in order to lend them to the public, but to secure the solvency of 
the Banking Department in the event of further unexpected demands 
by the depositors. And unless the drain continued, and reached 



672 BOOK IIL CHAPTER XXIV. § 4 

so great an amount as to seem likely to exceed the whole of the gold 
in the reserves of both departments, the Bank would be under no 
necessity, while the pressure lasted, of withholding from commerce 
its accustomed amount of accommodation, at a rate of interest 
corresponding to the increased demand.* 

I am aware it will be said that by allowing drains of this character 
to operate freely upon the Bank reserve until they cease of them- 
selves, a contraction of the currency and of credit would not be pre- 
vented, but only postponed ; since if a limitation of issues were not 
resorted to for the purpose of checking the drain in its commence- 
ment, the same or a still greater limitation must take place after- 
wards, in order, by acting on prices, to bring back this large quantity 
of gold, for the indispensable purpose of replenishing the Bank 
reserve. But in this argument several things are overlooked. In 
the first place, the gold might be brought back, not by a fall of prices, 
but by the much more rapid and convenient medium of a rise of the 
rate of interest, involving no fall of any prices except the price of 
securities. Either English securities would be bought on account of 
foreigners, or foreign securities held in England would be sent 
abroad for sale, both which operations took place largely during the 
mercantile difficulties of 1847, and not only checked the efflux of 
gold, but turned the tide and brought the metal back. It was not, 
therefore, brought back by a contraction of the currency, though 

* [1862] This, which I have called " the double action of drains," has been 
strangely understood as if I had asserted that the Bank is compelled to part 
with six millions' worth of property by a drain of three millions. Such 
an assertion would be too absurd to require any refutation. Drains have a 
double action, not upon the pecuniary position of the Bank itself, but upon the 
measures it is forced to take in order to stop the drain. Though the Bank 
itself is no poorer, its two reserves, the reserve in the banking department and 
the reserve in the issue department, have each been reduced three milhons by a 
drain of only three. And as the separation of the departments renders it 
necessary that each of them separately should be kept as strong as the two 
together need be if they could help one another, the Bank's action on the 
money market must be as violent on a drain of three milHons, as would have 
been required on the old system for one of six. The reserve in the banking 
department being less than it otherwise would be by the entire amount of the 
bullion in the issue department, and the whole amount of the drain falling in 
the first instance on that diminished reserve, the pressure of the whole drain 
on the half reserve is as much felt, and requires as strong measures to stop it, 
as a pressure of twice the amount on the entire reserve. As I have said 
elsewhere,* " it is as if a man having to lift a weight were restricted from using 
both hands to do it, and were only allowed to use one hand at a time : in 
which case it would be necessary that each of his hands should be as strong as 
the two together." 

* Evidence before the Committee of the House of Commons on the Bank Acts< 
in 1S57. 



REGULATION OF CURRENCY 673 

in tliis case it certainly was so by a contraction of loans. But even 
this is not always indispensable. For in the second place, it is not 
necessary that the gold should return with the same suddenness with 
which it went out. A great portion would probably return in the 
ordinary way of commerce, in payment for exported commodities. 
The extra gains made by dealers and producers in foreign countries 
through the extra payments they receive from this country, are very 
hkely to be partly expended in increased purchases of EngHsh 
commodities, either for consumption or on speculation, though the 
effect may not manifest itself with sufficient rapidity to enable the 
transmission of gold to be dispensed with in the first instance. 
These extra purchases would turn the balance of payments in favour 
of the country, and gradually restore a portion of the exported 
gold ; and the remainder would probably be brought back, without 
any considerable rise of the rate of interest in England, by the fall 
of it in foreign countries, occasioned by the addition of some milUons 
of gold to the loanable capital of those countries. Indeed, in the 
state of things consequent on the gold discoveries, when the enormous 
quantity of gold annually produced in AustraUa, and much of that 
from CaUfornia, is distributed to other countries through England, 
and a month seldom passes without a large arrival, the Bank reserves 
can replenish themselves without any re-importation of the gold 
previously carried off by a drain. All that is needful is an inter- 
mission, and a very brief intermission is sufficient, of the exportation. 
For these reasons it appears to me, that notwithstanding the 
beneficial operation of the Act of 1844 in the first stages of one kind 
of commercial crisis (that produced by over-speculation), it on the 
whole materially aggravates the severity of commercial revulsions. 
And not only are contractions of credit made more severe by the Act, 
they are also made greatly more frequent. " Suppose," says Mr. 
George Walker, in a clear, impartial, and conclusive series of papers 
in the Aberdeen Herald, forming one of the best existing discussions of 
the present question — " suppose that, of eighteen millions of gold, 
ten are in the Issue Department and eight are in the Banking Depart- 
ment. The result is the same as under a metallic currency with only 

eight milhons in reserve, instead of eighteen The effect of 

the Bank Act is, that the proceedings of the Bank under a drain are 
not determined by the amount of gold within its vaults, but are, 
or ought to be, determined by the portion of it belonging to the 
Banking Department. With the whole of the gold at its disposal, it 
may find it unnecessary to interfere with credit, or force down prices, 

z 



674 BOOK III. CHAPTER XXIV. § 5 

if a drain leave a fair reserve behind. With only the banking reserve 
at its disposal, it must, from the narrow margin it has to operate on, 
meet all drains by counteractives more or less strong, to the injury 
of the commercial world ; and if it fail to do so, as it may fail, the 
consequence is destruction. Hence the extraordinary and frequent 
variations of the rate of interest under the Bank Act. Since 1847, 
when the eyes of the Bank were opened to its true position, it has 
felt it necessary, as a precautionary measure, that every variation 
in the reserve should be accompanied by an alteration in the rate of 
interest." To make the Act innocuous, therefore, it would be 
necessary that the Bank, in addition to the whole of the gold in the 
Issue Department, should retain as great a reserve in gold or notes 
in the Banking Department alone, as would suffice under the old 
system for the security both of the issues and of the deposits. 

§ 5. There remain two questions respecting a bank-note cur- 
rency, which have also been a subject of considerable discussion of 
late years : whether the privilege of providing it should be confined 
to a single establishment, such as the Bank of England, or a plurality 
of issuers should be allowed ; and in the latter case, whether any 
peculiar precautions are requisite or advisable, to protect the holders 
of notes against losses occasioned by the insolvency of the issuers. 

The course of the preceding speculations has led us to attach 
so much less of peculiar importance to bank notes, as compared with 
other forms of credit, than accords with the notions generally current, 
that questions respecting the regulation of so very small a part of 
the general mass of credit cannot appear to us of such momentous 
import as they are sometimes considered. Bank notes, however, 
have so far a real peculiarity, that they are the only form of credit 
sufficiently convenient for all the purposes of circulation to be able 
entirely to supersede the use of metalHc money for internal purposes. 
Though the extension of the use of cheques has a tendency more and 
more to diminish the number of bank notes, as it would that of 
the sovereigns or other coins which would take their place if they 
were abolished ; there is sure, for a long time to come, to be a con- 
siderable supply of them, wherever the necessary degree of commer- 
cial confidence exists, and their free use is permitted. The exclusive 
privilege, therefore, of issuing them, if reserved to the Government 
or to some one body, is a source of great pecuniary gain. That this 
gain should be obtained for the nation at large is both practicable 
and desirable : and if the management of a bank-note currency 



REGULATION OF CURRENCY 675 

ought to be so completely mechanical, so entirely a thing of fixed 
rule, as it is made by the Act of 1844, there seems no reason why this 
mechanism should be worked for the profit of any private issuer, 
rather than for the public treasury. If, however, a plan be preferred 
which leaves the variations in the amount of issues in any degree 
whatever to the discretion of the issuers, it is not desirable that to 
the ever-growing attributions of the Government so delicate a 
function should be superadded ; and that the attention of the heads 
of the state should be diverted from larger objects, by their being 
besieged with the applications, and made a mark for all the attackt 
which are never spared to those deemed to be responsible for anj 
acts, however minute, connected with the regulation of the currency. 
It would be better that treasury notes, exchangeable for gold on 
demand, should be issued to a fixed amount, not exceeding the 
minimum of a bank-note currency ; the remainder of the notes which 
may be required being left to be supplied either by one or by a num- 
ber of private banking establishments. Or an estabhshment like 
the Bank of England might supply the whole country, on condition, 
of lending fifteen or twenty millions of its notes to the government 
without interest ; which would give the same pecuniary advantage 
to the state as if it issued that number of its own notes. 

The reason ordinarily alleged in condemnation of the system 
of plurality of issuers which existed in England before the Act of 
1844, and under certain limitations still subsists, is that the compe- 
tition of these different issuers induces them to increase the amount 
of their notes to an injurious extent. But we have seen that the power 
which bankers have of augmenting their issues, and the degree of 
mischief which they can produce by it, are quite trifling compared 
with the current over-estimate. As remarked by Mr. Fullarton,* 
the extraordinary increase of banking competition occasioned by the 
establishment of the joint-stock banks, a competition often of the 
most reckless kind, has proved utterly powerless to enlarge the aggre- 
gate mass of the bank-note circulation ; that aggregate circulation 
having, on the contrary, actually decreased. In the absence of any 
special case for an exception to freedom of industry, the general rule 
ought to prevail. It appears desirable, however, to maintain one 
great establishment like the Bank of England, distinguished from 
other banks of issue in this, that it alone is required to pay in gold, 
the others being at Hberty to pay their notes with notes of the central 
estabhshment. The object of this is that there may be one body 

* Pp. 89-92. 



676 BOOK IIL CHAPTER iSXIV. §6 

responsible for maintaining a reserve of the precious metals sufficient 
to meet any drain that can reasonably be expected to take place. 
By disseminating this responsibility among a number of banks, 
it is prevented from operating efficaciously upon any : or if it be still 
enforced against one, the reserves of the metals retained by all the 
others are capital kept idle in pure waste, which may be dispensed 
with by allowing them at their option to pay in Bank of England 
notes. 

§ 6. The question remains whether, in case of a plurality of 
issuers, any peculiar precautions are needed to protect the holders 
of notes from the consequences of failure of payment. Before 
1826, the insolvency of banks of issue was a frequent and very serious 
evil, often spreading distress through a whole neighbourhood, and 
at one blow depriving provident industry of the results of long and 
painful saving. This was one of the chief reasons which induced 
Parliament, in that year, to prohibit the issue of bank notes of a 
denomination below five pounds, that the labouring classes at least 
might be as little as possible exposed to participate in this suffering. 
As an additional safeguard, it has been suggested to give the holders 
of notes a priority over other creditors, or to require bankers to 
deposit stock or other public securities as a pledge for the whole 
amount of their issues. The insecurity of the former bank-note 
currency of England was partly the work of the law, which, in order 
to give a qualified monopoly of banking business to the Bank of 
England, had actually made the formation of safe banking establish- 
ments a punishable offence, by prohibiting the existence of any 
banks, in town or country, whether of issue or deposit, with a 
number of partners exceeding six. This truly characteristic specimen 
of the old system of monopoly and restriction was done away with 
in 1826, both as to issues and deposits, everywhere but in a district 
of sixty-five miles radius round London, and in 1833 in that district 
also, as far as relates to deposits. ^ It was hoped that the numerous 

* [The remainder of this paragraph replaced in the 4th ed. (1857) the 
following sentences of the original (1848) text : 

" The numerous joint-stock banks since established have, by furnishing 
G more trustworthy currency, made it almost impossible for any private 
banker to maintain his circulation, unless his capital and character inspire the 
most complete confidence. And although there has been in some instances 
very gross mismanagement by joint- stock banks (less, however, in the depart- 
ment of issues than in that of deposits) the failure of these banks is extremely 
rare, and the cases still rarer in which loss has ultimately been sustained by 
any one except the shareholders. The banking system of England is now 



REGULATION OF CURRENCY 67? 

Joint-stock banks since establislied would have fumisbed a more 
trustwortliy currency, and tliat under their influence the banking 
system of England would have been almost as secure to the public 
as that of Scotland (where banking was always free) has been for 
two centuries past. But the almost incredible instances of reckless 
and fraudulent mismanagement which these institutions have of 
late afforded (though in some of the most notorious cases the deKn- 
quent establishments have not been banks of issue), have shown 
only too clearly that, south of the Tweed at least, the joint-stock 
principle applied to banking is not the adequate safeguard it was so 
confidently supposed to be : and it is difficult now to resist the con- 
viction, that if plurality of issuers is allowed to exist, some kind of 
special security in favour of the holders of notes should be exacted 
as an imperative condition.^ 

almost as secure to the public, as that of Scotland (where banking was always 
free) has been for two centuries past ; and the legislature might without any 
bad consequences, at least of this kind, revoke its interdict (which was never 
extended to Scotland) against one and two pound notes. I cannot, therefore, 
think it at all necessary, or that it would be anything but vexatious meddling, 
to enforce any kind of special security in favour of the holders of notes. The 
true protection to creditors of all kinds is a good law of insolvency (a part of 
the law at present shamefully deficient), and, in the case of joint-stock companies 
at least, complete publicity of their accounts : the publicity now very properly 
given to their issues being a very small portion of what a state has a right 
to require in return for their being allowed to constitute themselves, and be 
recognised by the law, as a collective body."] 

' [See Appendix W. Thz Regulation of Gurrency*} 



CHAPTER XXV 

OF THE COMPETITION OP DIFFERENT COUNTRIES IN THE 
SAME MARKET 

§ 1. In the phraseology of the Mercantile System, the language 
and doctrines of which are still the basis of what may be called the 
political economy of the selling classes, as distinguished from the 
buyers or consumers, there is no word of more frequent recurrence 
or more perilous import than the word underselling. To undersell 
other countries — not to be undersold by other countries — were 
spoken of, and are still very often spoken of, almost as if they were 
the sole purposes for which production and commodities exist. The 
feelings of rival tradesmen, prevailing among nations, overruled for 
centuries all sense of the general community of advantage which 
commercial countries derive from the prosperity of one another : 
and that commercial spirit, which is now one of the strongest 
obstacles to wars, was during a certain period of European history 
their principal cause. 

Even in the more enlightened view now attainable of the nature 
and consequences of international commerce, some, though a com- 
paratively small, space must still be made for the fact of commercial 
rivaKty. Nations may, like individual dealers, be competitors, 
with opposite interests, in the markets of some commodities, while 
in others they are in the more fortunate relation of reciprocal 
customers. The benefit of commerce does not consist, as it was once 
thought to do, in the commodities sold ; but, since the commodities 
sold are the means of obtaining those which are bought, a nation 
would be cut off from the real advantage of commerce, the imports, 
if it could not induce other nations to take any of its commodities 
in exchange ; and in proportion as the competition of other countries 
compels it to offer its commodities on cheaper terms, on pain of 
not selling them at all, the imports which it obtains by its foreign 
trade are procured at greater cost. 



COMPETITION OF COUNTRIES IN THE SAME MARKET 679 

These points have been adequately, though incidentally, illus- 
trated in some of the preceding chapters. But the great space which 
the topic has filled, and continues to fill, in economical speculations, 
and in the practical anxieties both of poHticians and of dealers and 
manufacturers, makes it desirable, before quitting the subject of 
international exchange, to subjoin a few observations on the things 
which do, and on those which do not, enable countries to undersell 
one another. 

One country can only undersell another in a given market, 
to the extent of entirely expelUng her from it, on two conditions. 
In the first place, she must have a greater advantage than the second 
country in the production of the article exported by both ; meaning 
by a greater advantage (as has been already so fully explained) not 
absolutely, but in comparison with other commodities ; and in the 
second place, such must be her relation with the customer country 
in respect to the demand for each other's products, and such the 
consequent state of international values, as to give away to the 
customer country more than the whole advantage possessed by 
the rival country ; otherwise the rival will still be able to hold 
her ground in the market. 

Let us revert to the imaginary hypothesis of a trade between 
England and Germany in cloth and linen : England being capable 
of producing 10 yards of cloth at the same cost with 15 yards of 
linen, Germany at the same cost with 20, and the two commodities 
being exchanged between the two countries (cost of carriage apart) 
at some intermediate rate, say 10 for 17. Germany could not be 
permanently undersold in the EngHsh market, and expelled from it, 
unless by a country which offered not merely more than 17, but 
more than 20 yards of hnen for 10 of cloth. Short of that, the com- 
petition would only oblige Germany to pay dearer for cloth, but 
would not disable her from exporting Knen. The country, there- 
fore, which could undersell Germany, must, in the first place, be 
able to produce Hnen at less cost, compared with cloth, than Germany 
herself ; and in the next place, must have such a demand for cloth, or 
other EngHsh commodities, as would compel her, even when she 
became sole occupant of the market, to give a greater advantage to 
England than Germany could give by resigning the whole of hers ; 
to give, for example, 21 yards for 10. For if not — if, for example, 
the equation of international demand, after Germany was excluded, 
gave a ratio of 18 for 10, Germany could again enter into the com- 
petition ; Germany would be now the underselHng nation ; and 



680 BOOK III. CHAPTER XXV. § 2 • 

there would be a point, perhaps 19 for 10, at which both countries 
would be able to maintain their ground, and to sell in England 
enough linen to pay for the cloth, or other Enghsh commodities, for 
which, on these newly- adjusted terms of interchange, they had a 
demand. In like manner, England, as an exporter of cloth, could 
only be driven from the German market by some rival whose superior 
advantages in the production of cloth enabled her, and the intensity 
of whose demand for German produce compelled her, to offer 10 
yards of cloth, not merely for less than 17 yards of linen, but for less 
than 15. In that case, England could no longer carry on the trade 
without loss ; but in any case short of this, she would merely be 
obhged to give to Germany more cloth for less linen than she had 
previously given. 

It thus appears that the alarm of being permanently undersold 
may be taken much too easily ; may be taken when the thing really 
to be anticipated is not the loss of the trade, but the minor incon- 
venience of carrying it on at a diminished advantage ; an incon- 
venience chiefly falling on the consumers of foreign commodities, 
and not on the producers or sellers of the exported article. It is no 
sufficient ground of apprehension to the Enghsh producers to find 
that some other country can sell cloth in foreign markets, at some 
particular time, a trifle cheaper than they can themselves afford to 
do in the existing state of prices in England. Suppose them to be 
temporarily undersold, and their exports diminished ; the imports 
will exceed the exports, there will be a new distribution of the 
precious metals, prices will fall, and as all the money expenses of 
the Enghsh producers will be diminished, they will be able (if the 
case falls short of that stated in the preceding paragraph) again to 
compete with their rivals. The loss which England will incur, will 
not fall upon the exporters, but upon those who consume imported 
commodities ; who, with money incomes reduced in amount, will 
have to pay the same or even an increased price for all things 
produced in foreign countries. 

§ 2. Such, I conceive, is the true theory, or rationale, of under- 
selling. It will be observed that it takes no account of some things 
which we hear spoken of, oftener perhaps than any others, in the 
character of causes exposing a country to be undersold. 

According to the preceding doctrine, a country cannot be under- 
sold in any commodity, unless the rival country has a stronger 
inducement than itself for devoting its labour and capital to the 



COMPETITION OF COUNTRIES IN THE SAME MARKET 681 

production of the commodity ; arising from the fact that by doing so it 
occasions a greater saving of labour and capital, to be shared between 
' itself and its customers — a greater increase of the aggregate produce 
of the world. The underselUng, therefore, though a loss to the under- 
sold country, is an advantage to the world at large ; the substituted 
commerce being one which economizes more of the labour and 
capital of mankind, and adds more to their collective wealth, than 
the commerce superseded by it. The advantage, of course, con- 
sists in being able to produce the commodity of better quality, or 
with less labour (compared with other things) ; or perhaps not with 
less labour, but in less time ; with a less prolonged detention of the 
capital employed. This may arise from greater natural advantages 
(such as soil, cHmate, richness of mines) ; superior capabihty, 
either natural or acquired, in the labourers ; better division of 
labour, and better tools, or machinery. But there is no place left 
in this theory for the case of lower wages. This, however, in the 
theories commonly current, is a favourite cause of underselling. We 
continually hear of the disadvantage under which the British pro- 
ducer labours, both in foreign markets and even in his own, through 
the lower wages paid by his foreign rivals. These lower wages, we 
are told, enable, or are always on the point of enabling them to sell 
at lower prices, and to dislodge the EngUsh manufacturer from all 
markets in which he is not artificially protected. 

Before examining this opinion on grounds of principle, it is 
worth while to bestow a moment's consideration upon it as a ques- 
tion of fact. Is it true, that the wages of manufacturing labour are 
lower in foreign countries than in England, in any sense in which 
low wages are an advantage to the capitalist ? The artisan of Ghent 
or Lyons may earn less wages in a day, but does he not do less work ? 
Degrees of efhciency considered, does his labour cost less to his 
employer ? Though wages may be lower on the Continent, is not the 
Cost of Labour, which is the real element in the competition, very 
nearly the same ? That it is so seems the opinion of competent 
judges, and is confirmed by the very Kttle difference in the rate of 
profit between England and the Continental countries. But if so, 
the opinion is absurd that EngHsh producers can be undersold by 
their Continental rivals from this cause. It is only in America that 
the supposition is 'primd facie admissible. In America, wages are 
much higher than in England, if we mean by wages the daily earn- 
ings of a labourer : but the productive power of American labour is 
so great — its efficicDcyj combined with the favourable circumstances 



682 BOOK III. CHAPTER XXV. § 3 

in which it is exerted, makes it worth so much to the purchaser, that 
the Cost of Labour is lower in America than in England ; as is 
indicated by the fact that the general rate of profits and of interest 
is higher.i 

§ 3. But is it true that low wages, even in the sense of low 
Cost of Labour, enable a country to sell cheaper in the foreign 
market ? I mean, of course, low wages which are common to the 
whole productive industry of the country. 

If wages, in any of the departments of industry which supply 
exports, are kept, artificially, or by some accidental cause, below 
the general rate of wages in the country, this is a real advantage in 
the foreign market. It lessens the comparative cost of production 
of those articles, in relation to others ; and has the same effect as if 
their production required so much less labour. Take, for instance, 
the case of the United States in respect to certain commodities, 
prior to the civil war.2 Tobacco and cotton, two great articles of 
export, were produced by slave labour, while food and manufactures 
generally were produced by free labourers, either working on their 
own account or paid by wages. In spite of the inferior efficiency of 
slave labour, there can be no reasonable doubt that in a country 
where the wages of free labour were so high, the work executed by 
slaves was a better bargain to the capitalist. To whatever extent 
it was so, this smaller cost of labour, being not general, but limited 
to those employments, was just as much a cause of cheapness in the 
products, both in the home and in the foreign market, as if they 
had been made by a less quantity of labour. If, when the slaves 
in the Southern States were emancipated, their wages rose to the 
general level of the earnings of free labour in America, that country 
might have been obliged to erase some of the slave-grown articles 
from the catalogue of its exports, and would certainly be unable to 
sell any of them in the foreign market at the accustomed price. 
Accordingly, American cotton is now habitually at a much higher 
price than before the war. Its previous cheapness was partly an 
artificial cheapness, which may be compared to that produced by 
a bounty on production or on exportation : or, considering the 

^ [Until the 6th ed. (1865) the concluding clause ran : " as is proved by the 
fact that the general rate of profits and of interest is very much higher."] 

2 [The concluding clause of this sentence was added in the 7 th ed. (1871) ; 
the following sentences changed from the present to the past tense ; and the 
sentence about the price of American cotton was inserted.] 



COMPETITION OF COUNTRIES IN THE SAME MARKET 683 

means by wliich it was obtained, an apter comparison would be with 
tbe cheapness of stolen goods. 

An advantage of a similar economical, tbougb of a very different 
moral character, is that possessed by domestic manufactures ; fabrics 
produced in the leisure hours of families partially occupied in other 
pursuits, who, not depending for subsistence on the produce of the 
manufacture, can afford to sell it at any price, however low, for 
which they think it worth while to take the trouble of producing. 
In an account of the Canton of Zurich, to which I have had occasion 
to refer on another subject, it is observed,* " The workman of 
Zurich is to-day a manufacturer, to-morrow again an agriculturist, 
and changes his occupations with the seasons, in a continual round. 
Manufacturing industry and tillage advance hand in hand, in in- 
separable alliance, and in this union of the two occupations the 
secret may be found, why the simple and unlearned Swiss manu- 
facturer can always go on competing, and increasing in prosperity, 
in the face of those extensive estabUshments fitted out with great 
economic, and (what is still more important) intellectual, resources. 
Even in those parts of the Canton where manufactures have extended 
themselves the most widely, only one-seventh of all the famiHes 
belong to manufactures alone ; four-sevenths combine that employ- 
ment with agriculture. The advantage of this domestic or family 
manufacture consists chiefly in the fact, that it is compatible with 
all other avocations, or rather that it may in part be regarded as 
only a supplementary employment. In winter, in the dweUings of 
the operatives, the whole family employ themselves in it : but as 
soon as spring appears, those on whom the early field labours 
devolve abandon the in-door work ; many a shuttle stands still ; 
by degrees as the field-work increases, one member of the family 
follows another, till at last, at the harvest, and during the so-called 
* great works,' all hands seize the implements of husbandry ; but 
in unfavourable weather, and in all otherwise vacant hours, the 
work in the cottage is resumed, and when the ungenial season again 
recurs, the people return in the same gradual order to their home 
occupation, until they have all resumed it." 

In the case of these domestic manufactures, the comparative 
cost of production, on which the interchange between countries 
depends, is much lower than in proportion to the quantity of labour 
employed. The workpeople, looking to the earnings of their loom 

* Historisch^geografhisch-statisUsches Oemdlde der Schweiz. Erstes Heft, 
1834, p. 105. 



684 BOOK III. CHAPTER XXV. § 4 

for a part only, if for any part, of tteir actual maintenance, can 
afford to work for a less remuneration tlian the lowest rate of wages 
which can permanently exist in the employments by which the 
labourer has to support the whole expense of the family. Working, as 
they do, not for an employer but for themselves, they may be said 
to carry on the manufacture at no cost at all, except the small expense 
of a loom and of the material ; and the limit of possible cheapness 
is not the necessity of living by their trade but that of earning 
enough by the work to make that social employment of their leisure 
hours not disagreeable. 

§ 4. These two cases, of slave labour and of domestic manu- 
factures, exemplify the conditions under which low wages enable a 
country to sell its commodities cheaper in foreign markets, and 
consequently to undersell its rivals, or to avoid being undersold by 
them. But no such advantage is conferred by low wages when 
common to all branches of industry. General low wages never 
caused any country to undersell its rivals, nor did general high 
wages ever hinder it from doing so. 

To demonstrate this, we must return to an elementary principle 
which was discussed in a former chapter.* General low wages do 
not cause low prices, nor high wages high prices, within the country 
itself. General prices are not raised by a rise of wages, any more 
than' they would be raised by an increase of the quantity of labour 
required in all production. Expenses which affect all commodities 
equally, have no influence on prices. If the maker of broadcloth 
or cutlery, and nobody else, had to pay higher wages, the price of 
his commodity would rise, just as it would if he had to employ more 
labour ; because otherwise he would gain less profit than other 
producers, and nobody would engage in the employment. But 
if everybody has to pay higher wages, or everybody to employ more 
labour, the loss must be submitted to ; as it affects everybody alike, 
no one can hope to get rid of it by a change of employment, each 
therefore resigns himself to a diminution of profits, and prices remain 
as they were. In like manner, general low wages, or a general 
increase in the productiveness of labour, does not make prices low, 
but profits high. If wages fall, (meaning here by wages the cost 
of labour,) why, on that account, should the producer lower his price ? 
He will be forced, it may be said, by the competition of other 
capitalists who will crowd into his employment. But other capitalists 

* Supra, book iii. cb. iv. 



COMPETITION OF COUNTRIES IN THE SAME MARKET 685 

are also paying lower wages, and by entering into competition with 
him they would gain nothing but what they are gaining already. 
The rate then at which labour is paid, as well as the quantity of it 
which is employed, afiects neither the value nor the price of the 
commodity produced, except in so far as it is peculiar to that com- 
modity, and not common to commodities generally. 

Since low wages are not a cause of low prices in the country 
itself, so neither do they cause it to offer its commodities in foreign 
markets at a lower price. It is quite true that if the cost of labour 
is lower in America than in England, America could sell her cottons 
to Cuba at a lower price than England, and still gain as high a profit 
as the EngHsh manufacturer. But it is not with the profit of the 
EngHsh manufacturer that the American cotton spinner will make 
his comparison ; it is with the profits of other American- capitalists. 
These enjoy, in common with himself, the benefit of a low cost of 
labour, and have accordingly a high rate of profit. This high profit 
the cotton spinner must also have : he will not content himself with 
the EngHsh profit. It is true he may go on for a time at that lower 
rate, rather than change his employment ; and a trade may be 
carried on, sometimes for a long period, at a much lower profit than 
that for which it would have been originally engaged in. Countries 
which have a low cost of labour, and high profits, do not for that 
reason undersell others, but they do oppose a more obstinate re- 
sistance to being undersold, because the producers can often submit 
to a diminution of profit without being unable to live, and even to 
thrive, by their business. But this is all which their advantage 
does for them : and- in this resistance they will not long persevere, 
when a change of times which may give them equal profits with the 
rest of their countrymen has become manifestly hopeless. 

§ 5. There is a class of trading and exporting communities, 
on which a few words of explanation seem to be required. These 
are hardly to be looked upon as countries, carrying on an exchange 
of commodities with other countries, but more properly as outlying 
agricultural or manufacturing estabhshments belonging to a larger 
community. Our West India colonies, for example, cannot be 
regarded as countries, with a productive capital of their own. If 
Manchester, instead of being where it is, were on a rock in the North 
Sea, (its present industry nevertheless continuing,) it would still 
be but a town of England, not a country trading with England ; 
it would be merely, as now, a place where England finds it 



686 BOOK III. CHAPTER XXV. § 5 

convenient to carry on her cotton manufacture. The West Indies, 
in like manner, are the place where England finds it convenient to 
carry on the production of sugar, coffee, and a few other tropical 
commodities. All the capital employed is English capital ; almost 
all the industry is carried on for English uses ; there is Uttle pro- 
duction of anything except the staple commodities, and these are 
sent to England, not to be exchanged for things exported to the 
colony and consumed by its inhabitants, but to be sold in England 
for the benefit of the proprietors there. The trade with the West 
Indies is therefore hardly to be considered as external trade, but 
more resembles the traffic between town and country, and is amen- 
able to the principles of the home trade. The rate of profit in the 
colonies will be regulated by English profits ; the expectation of 
profit must be about the same as in England, with the addition of 
compensation for the disadvantages attending the more distant and 
hazardous employment ; and after allowance is made for those 
disadvantages, the value and price of West India produce in the 
English market must be regulated, (or rather must have been regu- 
lated formerly,) like that of any EngHsh commodity, by the cost 
of production. For the last twelve or fifteen years ^ this principle 
has been in abeyance : the price was first kept up beyond the ratio 
of the cost of production by deficient suppHes, which could not, 
owing to the deficiency of labour, be increased ; and more recently 
the admission of foreign competition has introduced another element, 
and some of ^ the West India Islands are undersold, not so much 
because wages are higher than in Cuba and Brazil, as because they 
are higher than in England : for were they not so, Jamaica could 
sell her sugars at Cuban prices, and still obtain, though not a Cuban, 
an English rate of profit. 

It is worth while also to notice another class of small, but in this 
case mostly independent communities, which have supported and 
enriched themselves almost without any productions of their own, 
(except ships and marine equipments,) by a mere carrying trade, and 
commerce of entrepot ; by buying the produce of one country, to 
sell it at a profit in another. Such were Venice and the Hanse Towns. 
The case of these communities is very simple. They made them- 
selves and their capital the instruments, not of production, but of 
accompHshing exchanges between the productions of other countries. 
These exchanges are attended with an advantage to those countries 

1 [So since 6th ed. (1865) ; replacing " ten or twelve " in 1st ed. (1848).] 

2 [" Some of " inserted in 5tji ed. (1862),] 



COMPETITION OF COUNTRIES IN THE SAME MARKET 68? 

— an increase of the aggregate returns to industry — part of which 
went to indemnify the agents for the necessary expenses of transport, 
and another part to remunerate the use of their capital and mer- 
cantile skill. The countries themselves had not capital disposable 
for the operation. When the Venetians became the agents of the 
general commerce of Southern Europe, they had scarcely any com- 
petitors : the thing would not have been done at all without them, 
and there was really no limit to their profits except the Hmit to 
what the ignorant feudal nobiHty could and would give for the un- 
known luxuries then first presented to their sight. At a later 
period competition arose, and the profit of this operation, Hke that 
of others, became amenable to natural laws. The carrying trade 
was taken up by Holland, a country with productions of its own and 
a large accumulated capital. The other nations of Europe also had 
now capital to spare, and were capable of conducting their foreign 
trade for themselves : but Holland, having, from a variety of cir- 
cumstances, a lower rate of profit at home, could afford to carry for 
other countries at a smaller advance on the original cost of the 
goods, than would have been required by their own capitaHsts ; 
and Holland, therefore, engrossed the greatest part of the carrying 
trade of all those countries which did not keep it to themselves by 
Navigation Laws, constructed, like those of England, for that 
express purpose. 



CHAPTER XXVI 

OF DISTRIBUTION, AS AFFECTED BY EXCHANGE 

§ 1. We have now completed, as far as is compatible witli our 
purposes and limits, tlie exposition of tlie machinery through, which 
the produce of a country is apportioned among the different classes 
of its inhabitants ; which is no other than the machinery of Exchange, 
and has for the exponents of its operation the laws of Value and of 
Price. We shall now avail ourselves of the light thus acquired, to 
cast a retrospective glance at the subject of Distribution. The 
division of the produce among the three classes, Labourers, Capitalists, 
and Landlords, when considered without any reference to Exchange, 
appeared to depend on certain general laws. It is fit that we should 
now consider whether these same laws still operate, when the dis- 
tribution takes place through the complex mechanism of exchange 
and money ; or whether the properties of the mechanism interfere 
with and modify the presiding principles. 

The primary division of the produce of human exertion and fru- 
gality is, as we have seen, into three shares, wages, profits, and rent ; 
and these shares are portioned out to the persons entitled to them, 
in the form of mone}', and by a process of exchange ; or rather, 
the capitalist, with whom in the usual arrangements of society the 
produce remains, pays in money, to the other two sharers, the 
market value of their labour and land. If we examine, on what 
the pecuniary value of labour, and the pecuniary value of the use 
of land, depend, we shall find that it is on the very same causes by 
which we found that wages and rent would be regulated if there were 
no money and no exchange of commodities. 

It is evident, in the first place, that the law of Wages is not affected 
bj the existence or non-existence of Exchange or Money. Wages 
depend on the ratio between population and capital ; and would 
d!o so iflniTEe'c^Itarin tHe world were the property of one associa- 
tion, or if the capitalists among whom it is shared maintained each 



DISTRIBUTION AS AFFECTED BY EXCHANGE 689 

an establishment for the production of every article consumed in 
the community, exchange of commodities having no existence. 
As the ratio between capital and population, in all old countries, 
depends, on the strength of the checks by which the too rapid increase 
of population is restrained, it may be said, popularly speaking, that 
wages depend on the checks to population ; that when the check is 
not death, by starvation or disease, wages depend on the prudence 
of the labouring people ; and that wages in any country are habitu- 
ally at the lowest rate to which in that country the labourer will 
suffer them to be depressed rather than put a restraint upon multi- 
plication. 

What is here meant, however, by wages, is the labourer's real 
scale of comfort ; the quantity he obtains of the things which nature 
or habit has made necessary or agreeable to Mm : wages in the 
sense in which they are of importance to the receiver. In the sense 
in which they are of importance to the payer, they do not depend 
exclusively on such simple principles. Wages in the first sense, the 
wages on which the labourer's comfort depends, we will call real 
wages, or wages in kind. Wages in the second sense, we may be 
permitted to call, for the present, money wages ; assuming, as it is 
allowable to do, that money remains for the time an invariable 
standard, no alteration taking place in the conditions under which 
the circulating medium itself is produced or obtained. If money 
itself undergoes no variation in cost, the money price of labour is 
an exact measure of the Cost of Labour, and may be made use of as 
a convenient symbol to express it. 

The money wages of labour are a compound result of tv/o elements : 
first, real wages, or wages in kind, or, in other words, the quantity 
which the labourer obtains of the ordinary articles of consumption ; 
and secondly, the money prices of those articles. In all old countries 
— all countries in which the increase of population is in any degree 
checked by the difficulty of obtaining subsistence — the habitual 
money price of labour is that which will just enable the labourers, 
one with another, to purchase the commodities without which they 
either cannot or will not keep up the population at its customary 
rate of increase.^ Their standard of comfort being given, (and by 
the standard of comfort in a labouring class, is meant that, rather 
than forego which, they will abstain from multipHcation,) money 
wages depend on the money price, and therefore on the cost of 

1 [So since 3rd ed. (1852). The original text ran': " the commodities 
without which they will not consent to continue the race."] 



690 BOOK III. CHAPTER XXVI. § 2 

production, of the various articles which the labourers habitually 
consume : because if their wages cannot procure them a given 
quantity of these, their increase will slacken, and their wages rise. 
Of these articles, food and other agricultural produce are so much 
the principal, as to leave little influence to anything else. 

It is at this point that we are enabled to invoke the aid of the 
principles which have been laid down in this Third Part. The cost 
of production of food and agricultural produce has been analyzed 
in a preceding chapter. It depends on the productiveness of the 
least fertile land, or of the least productively employed portion of 
capital, which the necessities of society have as yet put in requisition 
for agricultural purposes. The cost of production of the food grown 
in these least advantageous circumstances, determines, as we have 
seen, the exchange value and money price of the whole. In any 
given state, therefore, of the labourers' habits, their money wages 
depend on the productiveness of the least fertile land, or least 
productive agricultural capital ; on the point which cultivation has 
reached in its downward progress — in its encroachments on the 
barren lands, and its gradually increased strain upon the powers of 
the more fertile. Now, the force which urges cultivation in this 
downward course is the increase of people ; while the counter-force 
which checks the descent, is the improvement of agricultural science 
and practice, enabling the same soil to yield to the same labour more 
ample returns. The costliness of the most costly part of the produce 
of cultivation is an exact expression of the state, at any given 
moment, of the race which population and agricultural skill are 
always running against each other. 

§ 2. It is well said by Dr. Chalmerg, that many of the most 
important lessons in political economy are to be learnt at the extreme 
margin of cultivation, the last point which the culture of the soil has 
reached in its contest with the spontaneous agencies of nature. 
The degree of productiveness of this extreme margin is an index 
to the existing state of the distribution of the produce among the 
three classes, of labourers, capitalists, and landlords. 

When the demand of an increasing population for more food 
cannot be satisfied without extending cultivation to less fertile land, 
or incurring additional, outlay, with a less proportional return, on 
land already in cultivation, it is a necessary condition of this increase 
of agricultural produce that the value an d price of that produce 
must first rise. But as soon as the price has risen suflGiciently to give 



DISTRIBUTION AS AFFECTED BY EXCHANGE 691 

to the additional outlay of capital the ordinary profit, the rise will not 
go on still further for the purpose of enabling the new land, or the 
new expenditure on old land, to yield rent as well as profit. The 
land or capital last put in requisition, and occupying what Dr. 
Chalmers calls the margin of cultivation, will yield, and continue to 
yield, no rent. But if this yields no rent, the rent afforded by all 
other land or agricultural capital will be exactly so much as it pro- 
duces more than this. The price of food will always on the average 
be such, that the worst land, and the least productive instalment of 
the capital employed on the better lands, shall just replace the 
expenses with the ordinary profit. If the least favoured land and 
capital just do thus much, all other land and capital will yield an 
extra profit, equal to the proceeds of the extra produce due to their 
superior productiveness ; and this extra profit becomes, by com- 
petition, the prize of the landlords. Exchange, and money, there- 
fore, make no difference in the law of rent : it is the same as we 
originally found it. Rent is the extra return made to agricultural 
capital when employed with peculiar advantages ; the exact 
equivalent of what those advantages enable the producers to 
economize in the cost of production : the value and price of the 
produce being regulated by the cost of production to those producers 
who have no advantages ; by the return to that portion of agri- 
cultural capital, the circumstances of which are the least favourable. 

§ 3. Wages and Kent being thus regulated by the same principles, 
when paid in money, as they would be if apportioned in kind, it 
follows that Profits are so Hkewise, For the surplus, after re- 
placing wages and paying rent, constitutes Profits. 

We found in the last chapter of the Second Book, that the 
advances of the capitalist, when analyzed to their ultimate elements, 
consist either in the purchase or maintenance of labour, or in the 
profits of former capitalists ; and that therefore profits, in the last 
resort, depend upon the Cost of Labour, falUng as that rises, and 
rising as it falls. Let us endeavour to trace more minutely the 
operation of this law. 

There are two modes in which the Cost of Labour, which is cor^ 
rectly represented (money being supposed invariable) by the money 
wages of the labourer, may be increased. The labourer may obtain 
greater comforts ; wages in kind — real wages — may rise. Or the 
progress of population may force down cultivation to inferior soils, 
and more costly processes ; thus raising the cost of production, the 



692 BOOR III. CHAPTER XXVI. § 3 

value, and the price, of the chief articles of the labourer's consump- 
tion. On either of these suppositions, the rate of profit will fall. 

If the labourer obtains more abundant commodities, only by 
reason of their greater cheapness ; if he obtains a greater quantity, 
but not on the whole a greater cost ; real wages will be increased, but 
not money wages, and there will be nothing to affect the rate of 
profit. But if he obtains a greater quantity of commodities of 
which the cost of production is not lowered, he obtains a greater 
cost ; his money wages are higher. The expense of these increased 
money wages falls wholly on the capitalist. There are no conceivable 
means by which he can shake it off. It may be said — it is, not 
unfrequently, said — that he will get rid of it by raising his price. 
But this opinion we have already, and more than once, fully refuted.* 

The doctrine, indeed, that a rise of wages causes an equivalent 
rise of prices, is, as we formerly observed, self-contradictory : for 
if it did so, it would not be a rise of wages ; the labourer would get 
no more of any commodity than he had before, let his money wages 
rise ever so much ; a rise of real wages would be an impossibiUty. 
This being equally contrary to reason and to fact, it is evident that 
a rise of money wages does not raise prices ; that high wages are not 
a cause of high prices. A rise of general wages falls on profits. 
There is no possible alternative. 

Having disposed of the case in which the increase of money 
wages, and of the Cost of Labour, arises from the labourer's obtaining 
more ample wages in kind, let us now suppose it to arise from the 
increased cost of production of the things which he consumes ; 
owing to an increase of population, unaccompanied by an equivalent 
increase of agricultural skill. The augmented supply required by 
the population would not be obtained, unless the price of food rose 
sufficiently to remunerate the farmer for the increased cost of 
production. The farmer, however, in this case sustains a twofold 
disadvantage. He has to carry on his cultivation under less favour- 
able conditions of productiveness than before. For this, as it is a 
disadvantage belonging to him only as a farmer, and not shared by 
other employers, he will, on the general principles of value, be 
compensated by a rise of the price of his commodity : indeed, until 
this rise has taken place, he will not bring to market the required 
increase of produce. But this very rise of price involves him in 
another necessity, for which he is not compensated. As the real 

* Supra, book iii. ch. iv. § 2, and ch. xxv. § 4. 



DISTRIBUTION AS AFFECTED BY EXCHANGE 693 

wages of labour are by supposition unaltered, lie must pay higher 
money wages to his labourers. This necessity, being common to 
him with all other capitalists, forms no ground for a rise of price. 
The price will rise, until it has placed him in as good a situation in 
respect of profits, as other employers of labour : it will rise so as to 
indemnify him for the increased labour which he must now employ 
in order to produce a given quantity of food : but the increased 
wages of that labour are a burthen common to all, and for which no 
one can be indemnified. It will be paid wholly from profits. 

Thus we see that increased wages, when common to all descriptions 
of productive labourers, and when really representing a greater Cost 
of Labour, are always and necessarily at the expense of profits. 
And by reversing the cases, we should find in like manner that 
diminished wages, when representing a really diminished Cost of 
Labour, are equivalent to a rise of profits. But the opposition of 
pecuniary interest thus indicated between the class of capitahsts 
and that of labourers, is to a great extent only apparent. Real 
wages are a very different thing from the Cost of Labour, and are 
generally highest at the times and places where, from the easy terms 
on which the land yields all the produce as yet required from it, the 
value and price of food being low, the cost of labour to the employer, 
notwithstanding its ample remuneration, is comparatively cheap, 
and the rate of profit consequently high.^ We thus obtain a full 
confirmation of our original theorem that Profits depend on 
the Cost of Labour : or, to express the meaning with still greater 
accuracy, the rate of profit and the cost of labour vary inversely as 
one another, and are joint effects of the same agencies or causes. 

But does not this proposition require to be sHghtly modified, 
by making allowance for that portion (though comparatively small) 
of the expenses of the capitaHst, which does not consist in wages 
paid by himself or reimbursed to previous capitahsts, but in the 
profits of those previous capitahsts ? Suppose, for example, an 
invention in the manufacture of leather, the advantage of which 
should consist in rendering it unnecessary that the hides should 
remain for so great a length of time in the tan-pit. Shoemakers, 
saddlers, and other workers in leather, would save a part of that 
portion of the cost of their material which consists of the tanner's 
profits during the time his capital is locked up ; and this saving, 
it may be said, is a source from which they might derive an increase 

' The words " as at present in the United States ** were omitted at this 
point from the 6th ed. (1865),] 



694 BOOK III. CHAPTER XXVI. § 3 

of profit, thougli wages and the Cost of Labour remained exactly the 
same. In the case here supposed, however, the consumer alone 
would benefit, since the prices of shoes, harness, and all other articles 
into which leather enters, would fall, until the profits of the producers 
were reduced to the general level. To obviate this objection, let us 
suppose that a similar saving of expense takes place in all depart- 
ments of production at once. In that case, since values and prices 
would not be affected, profits would probably be raised ; but if we 
look more closely into the case we shall find, that it is because 
the cost of labour would be lowered. In this, as in any other 
case of increase in the general productiveness of labour, if the 
labourer obtained only the same real wages, profits would be 
raised : but the same real wages would imply a smaller Cost of 
Labour ; the cost of production of all things having been, by the 
supposition, diminished. If, on the other hand, the real wages of 
labour rose proportionally, and the Cost of Labour to the employer 
remained the same, the advances of the capitalist would bear the 
same ratio to his returns as before, and the rate of profit would be 
unaltered. The reader who may wish for a more minute examina- 
tion of this point, will find it in the volume of separate Essays 
to which reference has before been made.* The question is too 
intricate in comparison with its importance, to be further entered 
into in a work like the present ; and I will merely say, that it seems 
to result from the considerations adduced in the Essay, that there 
is nothing in the case in question to affect the integrity of the theory 
which affirms an exact correspondence, in an inverse direction, 
between the rate of profit and the Cost of Labour. 

* Essay IV. on Profits and Interest, 



BOOK IV 

INFLUENCE OF THE PROGRESS OF 

SOCIETY ON PRODUCTION AND 

DISTRIBUTION 

CHAPTER I 

GENERAL CHARACTERISTICS OF A PROGRESSIVE STATE OP WEALTH 

§ 1. The three preceding Parts include as detailed a view as 
our limits permit, of what, by a happy generalization o3' a mathe- 
matical phrase, has been called the Statics of the subject. We have 
surveyed the field of economical facts, and have examined how 
they stamd related to one another as causes and effects ; what 
circumstances determine the amount of production, of employment 
for labour, of capital and population ; what laws regulate rent, 
profits, and wages ; under what conditions and in what proportions 
commodities are interchanged between individuals and between 
countries. We have thus obtained a collective view of the economical 
phenomena of society, considered as existing simultaneously. We 
have ascertained, to a certain extent, the principles of their inter- 
dependence ; and when the state of some of the elements is known, 
we should now be able to infer, in a general way, the contempora- 
neous state of most of the others. All this, however, has only put 
us in possession of the economical laws of a stationary and un- 
changing society. We have still to consider the economical condition 
of mankind as liable to change, and indeed (in the more advanced 
portions of the race, and in all regions to which their influence 
reaches) as at all times undergoing progressive changes. We have to 
consider what these changes are, what are their laws, and what their 
ultimate tendencies ; thereby adding a theory of motion to our theory 
of equilibrium — the Dynamics of political economy to the Statics. 



696 BOOK IV. CHAPTER I. § 2 

In this inquiry, it is natural to commence by tracing the operation 
of known and acknowledged agencies. Whatever may be the 
other changes which the economy of society is destined to undergo, 
there is one actually in progress, concerning which there can be no 
dispute. In the leading countries of the world, and in all others as 
they come within the influence of those leading countries, there is 
at least one progressive movement which continues with little 
interruption from year to year and from generation to generation ; 
a progress in wealth ; an advancement of what is called material 
prosperity. All the nations which we are accustomed to call 
civilized, increase gradually in production and in population : and 
there is no reason to doubt, that not only these nations will for 
some time continue so to increase, but that most of the other nations 
of the world, including some not yet founded, will successively 
enter upon the same career. It will, therefore, be our first object 
to examine the nature and consequences of this progressive change ; 
the elements which constitute it, and the effects it produces on the 
various economical facts of which we have been tracing the laws, 
and especially on wages, profits, rents, values, and prices. 

§ 2. Of the features which characterize this progressive econo- 
mical movement of civilized nations, that which first excites 
attention, through its intimate connexion with the phenomena of 
Production, is the perpetual, and so far as human foresight can 
extend, the unlimited, growth of man's power over nature. Our 
knowledge of the properties and laws of physical objects shows no 
sign of approaching its ultimate boundaries : it is advancing more 
rapidly, and in a greater number of directions at once, than in any 
previous age or generation, and affording such frequent glimpses 
of unexplored fields beyond, as to justify the behef that our acquain- 
tance with nature is still almost in its infancy. This increasing 
physical knowledge is now, too, more rapidly than at any former 
period, converted, by practical ingenuity, into physical power. 
The most marvellous of modern inventions, one which realizes the 
imaginary feats of the magician, not metaphorically but literally — 
the electro-magnetic telegraph — sprang into existence but a few 
years after the establishment of the scientific theory which it 
realizes and exemplifies. Lastly, the manual part of these great 
scientific operations is now never wanting to the intellectual : there 
is no difficulty in finding or forming, in a sufficient number of the 
working hands of the community, the skill requisite for executing 



PROGRESSIVE STATE OP WEALTH 697 

the most delicate processes of the application of science to practical 
uses. From this union of conditions, it is impossible not to look 
forward to a vast multiplication and long succession of contrivances 
for economizing labour and increasing its produce ; and to an ever 
wider diffusion of the use and benefit of those contrivances. 

Another change, which has always hitherto characterized, and 
will assuredly continue to characterize, the progress of civilized 
society, is a continual increase of the security of person and property. 
The people of every country in Europe, the most backward as well 
as the most advanced, are, in each generation, better protected 
against the violence and rapacity of one another, both by a more 
efficient judicature and police for the suppression of private crime, 
and by the decay and destruction of those mischievous privileges 
which enabled certain classes of the community to prey with impunity 
upon the rest. They are also, in every generation, better protected, 
either by institutions or by manners and opinion, against arbitrary 
exercise of the power of government. Even in semi-barbarous 
Russia, acts of spoliation directed against individuals, who have not 
made themselves politically obnoxious, are not supposed to be now 
so frequent as much to affect any person's feeUngs of security. 
Taxation, in all European countries, grows less arbitrary and 
oppressive, both in itself and in the manner of levying it. Wars, 
and the destruction they cause, are now usually ^ confined, in almost 
every country, to those distant and outlying possessions at which 
it comes into contact with savages. Even the vicissitudes of 
fortune which arise from inevitable natural calamities, are more 
and more softened to those on whom they fall, by the continual 
extension of the salutary practice of insurance. 

Of this increased security, one of the most unfailing effects is 
a great increase both of production and of accumulation. Industry 
and frugality cannot exist where there is not a preponderant 
probabifity that those who labour and spare will be permitted to 
enjoy. And the nearer this probabifity approaches to certainty, 
the more do industry and frugafity become pervading qualities 
in a people. Experience has shown that a large proportion of the 
results of labour and abstinence may be taken away by fixed 
taxation, without impairing, and sometimes even with the effect 
of stimulating, the qualities from which a great production and an 
abundant capital take their rise. But those quaUties are not proof 

» [" Usually " inserted in 4th ed. (1857).] 



698 BOOK IV. CHAPTER I. § 2 

against a high degree of uncertainty. The Government may carry 
off a part ; but there must be assurance that it will not interfere, 
nor suffer any one to interfere, with the remainder. 

One of the changes which most infallibly attend the progress 
of modern society, is an improvement in the business capacities 
of the general mass of mankind. I do not mean that the practical 
sagacity of an individual human being is greater than formerly. I 
am inclined to believe that economical progress has hitherto had 
even a contrary effect. A person of good natural endowments, in 
a rude state of society, can do a great number of things tolerably 
well, has a greater power of adapting means to ends, is more capable 
of extricating himself and others from an unforeseen embarrassment, 
than ninety-nine in a hundred of those who have known only what 
is called the civilized form of hfe. How far these points of inferiority 
of faculties are compensated, and by what means they might be 
compensated still more completely, to the civiUzed man as an 
individual being, is a question belonging to a different inquiry from 
the present. But to civilized human beings collectively considered, 
the compensation is ample. What is lost in the separate efficiency of 
each, is far more than made up by the greater capacity of united 
action. In proportion as they put off the qualities of the savage, 
they become amenable to discipline ; capable of adhering to plans 
concerted beforehand, and about which they may not have been 
consulted ; of subordinating their individual caprice to a precon- 
ceived determination, and performing severally the parts allotted 
to them in a combined undertaking. Works of all sorts, imprac- 
ticable to the savage or the half-civilized, are daily accompHshed by 
civilized nations, not by any greatness of faculties in the actual agents, 
but through the fact that each is able to rely with certainty on the 
others for the portion of the work which they respectively undertake. 
The peculiar characteristic, in short, of civilized beings, is the 
capacity of co-operation ; and this, Uke other faculties, tends to 
improve by practice, and becomes capable of assuming a constantly 
wider sphere of action. 

Accordingly there is no more certain incident of the progressive 
change taking place in society, than the continual growth of the 
principle and practice of co-operation. Associations of individuals 
voluntarily combining their small contributions now perform 
works, both of an industrial and of many other characters, which 
no one person or small number of persons are rich enough to accom- 
plish, or for the performance of which the few persons capable of 



FROGKESSIVE STATE OF WEALTH 6UU^ 

accomplishing them were formerly enabled to exact the most 
inordinate remuneration. As wealth increases and business capacity- 
improves, we may look forward to a great extension of establish- 
ments, both for industrial and other purposes, formed by the 
collective contributions of large numbers ; estabUshments hke those 
called by the technical name of joint-stock companies, or the associ- 
ations less formally constituted, which are so numerous in England, 
to raise funds for public or philanthropic objects, ^or, lastly, those 
associations of workpeople either for production, or to buy goods for 
their common consumption, which are now specially known by the 
name of co-operative societies. 

The progress which is to be expected in the physical sciences 
and arts, combined with the greater security of property, and 
greater freedom in disposing of it, which are obvious features in the 
civihzation of modern nations, and with the more extensive and 
more skilful employment of the joint-stock principle, afford space 
and scope for an indefinite increase of capital and production, and 
for the increase of population which is its ordinary accompaniment. 
That the growth of population will overpass the increase of pro- 
duction, there is not much reason to apprehend ; and that it should 
even keep pace with it, is inconsistent with the supposition of any 
real improvement in the poorest classes of the people. It is, how- 
ever, quite possible that there might be a great progress in industrial 
improvement, and in the signs of what is commonly called national 
prosperity ; a great increase of aggregate wealth, and even, in 
some respects, a better distribution of it ; that not only the rich 
might grow richer, but many of the poor might grow rich, that the 
intermediate classes might become more numerous and powerful, 
and the means of enjoyable existence be more and more largely 
diffused, while yet the great class at the base of the whole might 
increase in numbers only, and not in comfort nor in cultivation. We 
must, therefore, in considering the effects of the progress of industry, 
admit as a supposition, however greatly we deprecate as a fact, 
an increase of population as long-continued, as indefinite, and 
possibly even as rapid, as the increase of production and accumu- 
lation. 

With these preliminary observations on the causes of change 
at work in a society which is in a state of economical progress, I 
proceed to a more detailed examination of the changes themselves. 

^ [The remaining words of the sentence were added in the 6th ed. (1865).] 



CHAPTER II 

INFLUENCE OF THE PROGRESS OP INDUSTRY AND POPULATION 
ON VALUES AND PRICES 

§ 1. The changes which the progress of industry causes or 
presupposes in the circumstances of production, are necessarily 
attended with changes in the values of commodities. 

The permanent values of all things which are neither under a 
natural nor under an artificial monopoly, depend, as we have seen, 
on their cost of production. But the increasing power which 
mankind are constantly acquiring over nature, increases more and 
more the efficiency of human exertion, or, in other words, diminishes 
cost of production. All inventions by which a greater quantity 
of any commodity can be produced with the same labour or the 
same quantity with less labour^ or which abridge the process, so that 
the capital employed needs not be advanced for so long a time, 
lessen the cost of production of the commodity. As, however,, value 
is relative ; if inventions and improvements in production were 
made in all commodities, and all in the same degree, there would 
be no alteration in values. Things would continue to exchange for 
each other at the same rates as before ; and mankind would obtain 
a greater quantity of all things in return for their labour and 
abstinence, without having that greater abundance measured and 
declared (as it is when it affects only one thing) by the diminished 
exchange value of the commodity. 

As for prices, in these circumstances they would be affected or 
not, according as the improvements in production did or did not 
extend to the precious metals. If the materials of money were an 
exception to the general diminution of cost of production, the 
values of all other things would fall in relation to money, that is^ 
there would be a fall of general prices throughout the world. But 
if money, like other things, and in the same degree as other things, 
were obtained in greater abundance and cheapness, prices would be 



INFLUENCE OF INDUSTRIAL PROGRESS ON PRICES 701 

no more affected than values would : and there would be no visible 
sign in the state of the markets, of any of the changes which had 
taken place ; except that there would be (if people continued to 
labour as much as before) a greater quantity of all sorts of com- 
modities, circulated at the same prices by a greater quantity of money. 

Improvements in production are not the only circumstance 
accompanying the progress of industry which tends to diminish the 
cost of producing, or at least of obtaining, commodities. Another 
circumstance is the increase of intercourse between different parts 
of the world. As commerce extends, and the ignorant attempts 
to restrain it by tariffs become obsolete, commodities tend more 
and more to be produced in the places in which their production 
can be carried on at the least expense of labour and capital to 
mankind. As civiHzation spreads, and security of person and 
property becomes established, in parts of the world which have not 
hitherto had that advantage, the productive capabilities of those 
places are called into fuller activity, for the benefit both of their own 
inhabitants and of foreigners. The ignorance and misgovernment 
in which many of the regions most favoured by nature are still 
grovelling, afford work, probably, for many generations before those 
countries will be raised even to the present level of the most civilized 
parts of Europe. Much will also depend on the increasing migration 
of labour and capital to unoccupied parts of the earth, of which the 
soil, chmate, and situation are found, by the ample means of explora- 
tion now possessed, to promise not only a large return to industry, 
but great facilities of producing commodities suited to the markets 
of old countries. Much as the collective industry of the earth is 
likely to be increased in efficiency by the extension of science and of 
the industrial arts, a still more active source of increased cheapness 
of production will be found, probably, for some time to come, in the 
gradually unfolding consequences of Free Trade, and in the increasing 
scale on which Emigration and Colonization will be carried on. 

From the causes now enumerated, unless counteracted by others, 
the progress of things enables a country to obtain at less and less of 
real cost, not only its own productions but those of foreign countries. 
Indeed, whatever diminishes the cost of its own productions, when of 
an exportable character, enables it, as we have already seen, to 
obtain its imports at less real cost. 

§ 2. But is it the fact, that these tendencies are not counter- 
acted ? Has the progress of wealth and industry no effect in regard 



702 BOOK IV. CHAPTER 11. § 2 

to cost of production, but to diminish it ? Are no causes of an 
opposite character brought into operation by the same progress, 
sufficient in some cases not only to neutralize, but to overcome the 
former, and convert the descending movement of cost of production 
into an ascending movement ? We are already aware that there are 
such causes, and that, in the case of the most important classes of 
commodities, food and materials, there is a tendency diametrically 
opposite to that of which we have been speaking. The cost of 
production of these commodities tends to increase. 

This is not a property inherent in the commodities themselves. 
If population were stationary, and the produce of the earth never 
needed to be augmented in quantity, there would be no cause for 
greater cost of production. Mankind would, on the contrary, have 
the full benefit of all improvements in agriculture, or in the arts 
subsidiary to it, and there would be no difference, in this respect, 
between the products of agriculture and those of manufactures.^ 
The only products of industry which, if population did not increase, 
would be liable to a real increase of cost of production, are those 
which, depending on a material which is not renewed, are either 
wholly or partially exhaustible ; such as coal, and most if not all 
metals ; for even iron, the most abundant as well as most useful of 
metallic products, which forms an ingredient of most minerals and 
of almost all rocks, is susceptible of exhaustion so far as regards its 
richest and most tractable ores. 

When, however, population increases, as it has never yet failed 
to do when the increase of industry and of the means of subsistence 
made room for it, the demand for most of the productions of the 
earth, and particularly for food, increases in a corresponding propor- 
tion. And then comes into effect that fundamental law of produc- 
tion from the soil, on which we have so frequently had occasion to 
expatiate ; the law, that increased labour, in any given state of 
agricultural skill, is attended with a less than proportional increase 
of produce. The cost of production of the fruits of the earth 
increases, cceteris 'paribus, with every increase of the demand. 

No tendency of a like kind exists with respect to manufactured 
articles. The tendency is in the contrary direction. The larger 

* [The following passage of the original (1848) te;xt was omitted in the 5th 
ed. (1862) : " The former, indeed, so far as present foresight can ejctend, 
does not seem to be susceptible to improved processes to so great a degree 
as some branches of manufacture ; but inventions may be in reserve for the 
future which may invert this relation."] 



INFLUENCE OF INDUSTRIAL PROGRESS ON PRICES 701 

the scale on wliich manufacturing operations are carried on, tlie 
more cheaply they can in general be performed. Mr. Senior has 
gone the length of enunciating as an inherent law of manufacturing 
industry, that in it increased production takes place at a smaller 
cost, while in agricultural industry increased production takes place 
at a greater cost. I cannot think, however, that even in manufac- 
tures, increased cheapness follows increased production by anything 
amounting to a law. - It is a probable and usual, but not a necessary 
consequence. 

As manufactures, however, depend for their materials either 
upon agriculture, or mining, or the spontaneous produce of the earth, 
manufacturing industry is subject, in respect of one of its essentials, 
to the same law as agriculture. But the crude material generally 
forms so small a portion of the total cost, that any tendency 
which may exist to a progressive increase in that single item, is 
much over-balanced by the diminution continually taking place in 
all the other elements ; to which diminution it is impossible at 
present to assign any Umit. 

The tendency, then, being to a perpetual increase of the pro- 
ductive power of labour in manufactures, while in agriculture and 
mining there is a conflict between two tendencies, the one towards 
an increase of productive power, the other towards a diminution of 
it, the cost of production being lessened by every improvement in 
the processes, and augmented by every addition to population ; it 
follows that the exchange values of manufactured articles, compared 
with the products of agriculture and of mines, have, as population 
and industry advance, a certain and decided tendency to fall. 
Money being a product of mines, it may also be laid down as a rule, 
that manufactured articles tend, as society advances, to fall in money 
price. The industrial history of modern nations, especially during 
the last hundred years, fully bears out this assertion. 

§ 3. Whether agricultural produce increases in absolute as well 
as comparative cost of production, depends on the conflict of the 
two antagonist agencies, increase of population, and improvement 
in agricultural skill. In some, perhaps in most, states of society, 
(looking at the whole surface ot the earth,) both agricultural skill 
and population are either stationary, or increase very slowly, and 
the cost of production of food, therefore, is nearly stationary. In a 
society which is advancing in wealth, population generally increases 
faster than agricultural skill, and food consequently tends to become 



704 BOOK IV. CHAPTER 11. § 4 

more costly ; but ttere are times when a strong impulse sets in 
towards agricultural improvement. Such an impulse has shown 
itself in Great Britain during the last twenty or thirty ^ years. In 
England and Scotland agricultural skill has of late increased con- 
siderably faster than population, insomuch that food and other 
agricultural produce, notwithstanding the increase of people, can be 
grown at less cost than they were thirty years ago ^ : and the aboU- 
tion of the Corn Laws has given an additional stimulus to the spirit 
of improvement. In some other countries, and particularly in 
France, the improvement of agriculture gains ground still more 
decidedly upon population, because though agriculture, except in a 
few provinces, advances slowly, population advances still more 
slowly, and even with increasing slowness ; its growth being kept 
down, not by poverty, which is diminishing, but by prudence. 

Which of the two conflicting agencies is gaining upon the other at 
any particular time, might be conjectured with tolerable accuracy 
from the money price of agricultural produce (supposing bullion not 
to vary materially in value), provided a sufficient number of years 
could be taken, to form an average independent of the fluctuations 
of seasons. This, however, is hardly practicable, since Mr. Tooke 
has shown that even so long a period as half a century may include a 
much greater proportion of abundant and a smaller of deficient 
seasons than is properly due to it. A mere average, therefore, might 
lead to conclusions only the more misleading, for their deceptive 
semblance of accuracy. There would be less danger of error in 
taking the average of only a small number of years, and correcting 
it by a conjectural allowance for the character of the seasons, than 
in trusting to a longer average without any such correction. It is 
hardly necessary to add, that in founding conclusions on quoted 
prices, allowance must also be made as far as possible for any changes 
in the general exchange value of the precious metals.* * 

§ 4. Thus far, of the effect of the progress of society on the 
permanent or average values and prices of commodities. It re- 

1 [The " fifteen or twenty " of the 1st ed. (1848) was replaced in the 6th ed. 
(1865) by " twenty or twenty-five," and in the 7th (1871) by " twenty or 
thirty."] 

2 [Written in 1848.] 

* [1852] A still better criterion, perhaps, than that suggested in the text, 
would be the increase or diminution of the amount of the labourer's wages 
estimated ip agricultural produce. 

* [See Appendix iX. Prices in the 19th Century.} 



IISFLUENCE OF INDUSTRIAL PROGRESS ON PRICES 705 

mains to be considered in what manner the same progress afiects 
their fluctuations. Concerning the answer to this question there 
can be no doubt. It tends in a very high degree to diminish them. 

In poor and backward societies, as in the East, and in Europe 
during the Middle Ages, extraordinary differences in the price of 
the same commodity might exist in places not very distant from each 
other, because the want of roads and canals, the imperfection 
of marine navigation, and the insecurity of communications 
generally, prevented things from being transported from the places 
where they were cheap to those where they were dear. The things 
most liable to fluctuations in value, those directly influenced by the 
seasons, and especially food, were seldom carried to any great 
distances. Each locaUty depended, as a general rule, on its owu 
produce and that of its immediate neighbourhood. In most years, 
accordingly, there was, in some part or other of any large country, 
a real dearth. Almost every season must be unpropitious to some 
among the many soils and climates to be found in an extensive tract 
of country ; but as the same season is also in general more than 
ordinarily favourable to others, it is only occasionally that the 
aggregate produce of the whole country is deficient, and even then 
in a less degree than that of many separate portions ; while a 
deficiency at all considerable, extending to the whole world, is a 
thing almost unknown. In modern times, therefore, there is only 
dearth, where there formerly would have been famine, and sufficiency 
everywhere when anciently there would have been scarcity in some 
places and superfluity in others. 

The same change has taken place with respect to all other 
articles of commerce. The safety and cheapness of communications, 
which enable a deficiency in one place to be supplied from the surplus 
of another, at a moderate or even a small advance on the ordinary 
price, render the fluctuations of prices much less extreme than 
formerly. This effect is much promoted by the existence of large 
capitals, belonging to what are called speculative merchants, whose 
business it is to buy goods in order to resell them at a profit. 

These dealers naturally buying things when they are cheapest, and 
storing them up to be brought again into the market when the price 
has become unusually high ; the tendency of their operations is to 
equalize price, or at least to moderate its inequaUties. The prices of 
things are neither so much depressed at one time, nor so much raised 
at another, as they would be if speculative dealers did not exist. 

Speculators, therefore, have a highly useful o^ce in the economy 

2 A 



706 BOOK IV. CHAPTER II. § 6 

of society ; and (contrary to common opinion) tlie most useful 
portion of the class are those who speculate in commodities affected 
by the vicissitudes of seasons. If there were no corn-dealers, not 
only would the price of corn be liable to variations much more 
extreme than at present, but in a deficient season the necessary 
supplies might not be forthcoming at all. Unless there were 
speculators in corn, or unless, in default of dealers, the farmers 
became speculators, the price in a season of abundance would fall 
without any Umit or check, except the wasteful consumption that 
would invariably follow. That any part of the surplus of one year 
remains to supply the deficiency of another, is owing either to 
farmers who withhold corn from the market, or to dealers who 
buy it when at the cheapest and lay it up in store. 

§ 5. Among persons who have not much considered the subject, 
there is a notion that the gains of speculators are often made by 
causing an artificial scarcity ; that they create a high price by their 
own purchases, and then profit by it. This may easily be shown to 
be fallacious. If a corn-dealer makes purchases on speculation, and 
produces a rise, when there is neither at the time nor afterwards any 
cause for a rise of price except his own proceedings ; he no doubt 
appears to grow richer as long as his purchases continue, because he 
is a holder of an article which is quoted at a higher and higher price : 
but this apparent gain only seems within his reach so long as he does 
not attempt to realize it. If he has bought, for instance, a million 
of quarters, and by withholding them from the market, has raised 
the price ten shillings a quarter ; just so much as the price has been 
raised by withdrawing a million quarters, will it be lowered by 
bringing them back, and the best that he can hope is that he will 
lose nothing except interest and his expenses. If by a gradual and 
cautious sale he is able to realize, on some portion of his stores, a 
part of the increased price, so also he will undoubtedly have had to 
pay a part of that price on some portion of his purchases. He runs 
considerable risk of incurring a still greater loss ; for the temporary 
high price is very likely to have tempted others, who had no share 
in causing it, and who might otherwise not have found their way to 
his market at all, to bring their corn there, and intercept a part of 
the advantage. So that instead of profiting by a scarcity caused 
by himself, he is by no means unhkely, after buying in an average 
market, to be forced to sell in a superabundant one. 

As an individual speculator cannot gain by a rise of price solely 



of his own creating, so neither can a number of speculators gain 
collectively by a rise which their operations have artificially produced. 
Some among a number of speculators may gain, by superior judg- 
ment or good fortune! in selecting the time for realizing, but they 
make this gain at the expense, not of the consumer, but of the other 
speculators who are less judicious. They, in fact, convert to their 
own benefit the high price produced by the speculations of the others, 
leaving to these the loss resulting from the recoil. It is not to b^ 
denied, therefore, that speculators may enrich themselves by other 
people's loss. But it is by the losses of other speculators. As 
much must have been lost by one set of dealers as is gained by 
another set. 

When a speculation in a commodity proves profitable to the 
speculators as a body, it is because, in the interval between their 
buying and reselling, the price rises from some cause independent 
of them, their only connexion with it consisting in having foreseen 
it. In this case, their purchases make the price begin to rise sooner 
than it otherwise would do, thus spreading the privation of the 
consumers over a longer period, but mitigating it at the time of its 
greatest height : evidently to the general advantage. In this, 
however, it is assumed that they have not overrated the rise which 
they looked forward to. For it often happens that speculative 
purchases are made in the expectation of some increase of demand, 
or deficiency of supply, which after all does not occur, or not to the 
extent which the speculator expected. In that case the speculation, 
instead of moderating fluctuation, has caused a fluctuation of price 
which otherwise would not have happened, or aggravated one which 
would. But in that case, the speculation is a losing one, to the 
speculators collectively, however much some individuals may gain 
by it. All that part of the rise of price by which it exceeds what 
there are independent grounds for, cannot give to the speculators as 
a body any benefit, since the price is as much depressed by their 
sales as it was raised by their purchases ; and while they gain nothing 
by it, they lose, not only their trouble and expenses, but almost 
always much more, through the effects incident to the artificial rise 
of price, in checking consumption, and bringing forward supplies 
from unforeseen quarters. The operations, therefore, of speculative 
dealers, are useful to the public whenever profitable to themselves ; 
and though they are sometimes injurious to the public, by heighten- 
ing the fluctuations which their more usual office is to alleviate, yet 
» [" Or good fortune " added in 3rd ed. (1852).] 



708 JiUUJi. iV. UHAriJiit 11. § 

wheuever this happens the speculators are the greatest losers. 
The interest, in short, of the speculators as a body, coincides with 
the interest of the public ; and as they can only fail to serve the 
public interest in proportion as they miss their own, the best way to 
promote the one is to leave them to pursue the other in perfect 
freedom. 

I do not deny that speculators may aggravate a local scarcity. 
In collecting corn from the villages to supply the towns, they make 
the dearth penetrate into nooks and corners which might otherwise 
have escaped from bearing their share of it. To buy and resell in 
the same place, tends to alleviate scarcity ; to buy in one place and 
resell in another, may increase it in the former of the two places, 
but relieves it in the latter, where the price is higher, and which, there- 
fore, by the very supposition, is likely to be suffering more. And 
these sufferings always fall hardest on the poorest consumers, 
since the rich, by outbidding, can obtain their accustomed supply 
undiminished if they choose. To no persons, therefore, are the 
operations of corn-dealers on the whole so beneficial as to the poor. 
Accidentally and exceptionally, the poor may suffer from them : it 
might sometimes be more advantageous to the rural poor to have 
corn cheap in winter, when they are entirely dependent on it, even 
if the consequence were a dearth in spring, when they can perhaps 
obtain partial substitutes. But there are no substitutes, procurable 
at that season, which serve in any great degree to replace bread- 
corn as the chief article of food : if there were, its price would fall in 
the spring, instead of continuing, as it always does, to rise till the 
approach of harvest. 

There is an opposition of immediate interest, at the moment of 
sale, between the dealer in corn and the consumer, as there always is 
between the seller and the buyer : and a time of dearth being that 
in which the speculator makes his largest profits, he is an object of 
dislike and jealousy at that time, to those who are suffering while 
he is gaining. It is an error, however, to suppose that .the corn- 
dealer's business affords him any extraordinary profit : he makes 
his gains not constantly, but at particular times, and they must 
therefore occasionally be great, but the chances of profit in a business 
in which there is so much competition, cannot on the whole be 
greater than in other employments. A year of scarcity, in which 
great gains are made by corn-dealers, rarely comes to an end without 
a recoil which places many of them in the list of bankrupts. There 
have been few more promising seasons for corn-dealers than the 



INFLUENCE OF INDUSTRIAL PROGRESS ON PRICES 709 

year 1847, and seldom was there a greater break-up among the 
speculators than in the autumn of that year. The chances of 
failure, in this most precarious trade, are a set-oS against great 
occasional profits. If the corn-dealer were to sell his stores, during 
a dearth, at a lower price than that which the competition of the 
consumers assigns to him, he would make a sacrifice, to charity or 
philanthropy, of the fair profits of his employment, which may be 
quite as reasonably required from any other person of equal means. 
His business being a useful one, it is the interest of the pubHc that 
the ordinary motives should exist for carrying it on, and that neither 
law nor opinion should prevent an operation beneficial to the 
pubHc from being attended with as much private advantage as is 
compatible with full and free competition. 

It appears, then, that the fluctuations of values and prices 
arising from variations of supply, or from alterations in real (as 
distinguished from speculative) demand, may be expected to 
become more moderate as society advances. With regard to those 
which arise from miscalculation, and especially from the alternations 
of undue expansion and excessive contraction of credit, which 
occupy so conspicuous a place among commercial phenomena, the 
same thing cannot be affirmed with equal confidence. Such vicissi- 
tudes, beginning with irrational speculation and ending with a 
commercial crisis, have not hitherto become either less frequent or 
less violent with the growth of capital and extension of industry. 
Rather they may be said to have become more so : in consequence, 
as is often said, of increased competition ; but, as I prefer to say, 
of a low rate of profits and interest, which makes capitalists dis- 
satisfied with the ordinary course of safe mercantile gains.^ The 
connexion of this low rate of profit with the advance of population 
and accumulation, is one of the points to be illustrated in the 
ensuing chapters. 

^ [See Appendix Y, Commercial Cycles.} 



CHAPTER III 

INFLUENCE OF THE PROGRESS OF INDUSTRY AND POPULATION, ON 
RENTSj PROFITS, AND WAGES 

§ 1. Continuing the inquiry into tlie nature of the economical 
changes taking place in a society which is in a state of industrial 
progress, we shall next consider what is the effect of that progress 
on the distribution of the produce among the various classes who 
share in it. We may confine our attention to the system of dis- 
tribution which is the most complex, and which virtually includes 
all others — that in which the produce of manufactures is shared 
between two classes, labourers and capitalists, and the produce of 
agriculture among three, labourers, capitalists, and landlords. 

The characteristic features of what is commonly meant by in- 
dustrial progress resolve themselves mainly into threCj increase of 
capital, increase of population, and improvements in production ; 
understanding the last expression in its widest sense, to include the 
process of procuring commodities from a distance, as well as that of 
producing them. The other changes which take place are chiefly 
consequences of these ; as, for example, the tendency to a progressive 
increase of the cost of production of food ; arising from an increased 
demand, which may be occasioned either by increased population, or 
by an increase of capital and wages, enabhng the poorer classes to 
increase their consumption. It will be convenient to set out by 
considering each of the three causes, as operating separately ; after 
which we can suppose them combined in any manner we think fit. 

Let us first suppose that population increases, capital and the 
arts of production remaining stationary. One of the effects of thh 
change of circumstances is sufficiently obvious : wages will fall ; 
the labouring class will be reduced to an inferior condition. The 
state of the capitalist, on the contrary, will be improved. With 
the same capital, he can purchase more labour, and obtain more 
produce. His rate of profit is increased. The dependence of the 



INFLUENCE OE PROGRESS ON RENTS, PROFITS, &c. 711 

rate of profits on tlie cost of labour is here verified ; for the labourer 
obtaining a diminished quantity of commodities, and no alteration 
being supposed in the circumstances of their production, the 
diminished quantity represents a diminished cost. The labourer 
obtains not only a smaller real reward, but the product of a smaller 
quantity of labour.^ The first circumstance is the important one to 
himself, the last to his employer. 

Nothing has occurred, thus far, to affect in any way the value 
of any commodity ; and no reason, therefore, has yet shown itself, 
why rent should be either raised or lowered. But if we look forward 
another stage in the series of effects, we may see our way to such 
a consequence. The labourers have increased in numbers : their 
condition is reduced in the same proportion ; the increased numbers 
divide among them only the produce of the same amount of labour 
as before. But they may economize in their other comforts, and not 
in their food : each may consume as much food, and of as costly a 
quality as previously ; or they may submit to a reduction, but not 
in proportion to the increase of numbers. On this supposition, 
notwithstanding the diminution of real wages, the increased 
population will require an increased quantity of food. But since 
industrial skill and knowledge are supposed to be stationary, more 
food can only be obtained by resorting to worse land, or to methods 
of cultivation which are less productive in proportion to the outlay. 
Capital for this extension of agriculture will not be wanting ; for 
though, by hypothesis, no addition takes place to the capital in 
existence, a sufficient amount can be spared from the industry 
which previously supplied the other and less pressing wants which 
the labourers have been obhged to curtail. The additional supply 
of food, therefore, will be produced, but produced at a greater cost ; 
and the exchange value of agricultural produce must rise. It may 
be objected, that profits having risen, the extra cost of producing 
food can be defrayed from profits, without any increase of price. 
It could, undoubtedly, but it will not ; because, if it did, the agricul- 
turist would be placed in an inferior position to other capitalists. 
The increase of profits, being the effect of diminished wages, is 
common to all employers of labour. The increased expenses arising 
from the necessity of a more costly cultivation, affect the agriculturist 
alone. For this peculiar burthen he must be pecuHarly compensated, 
whether the general rate of profit be high or low. He will not 
submit indefinitely to a deduction from his profits to which other 
capitaHsts are not subject. He will not extend his cultivation by 



712 BOOK IV. CHAPTER III. § 1 

laying out fresli capital, unless for a return sufficient to yield him 
as high a profit as could be obtained by the same capital in other 
investments. The value, therefore, of his commodity will rise, and 
rise in proportion to the increased cost. The farmer will thus be 
indemnified for the burthen which is pecuUar to himself, and will 
also enjoy the augmented rate of profit which is common to all 
capitalists. 

It follows, from principles with which we are already familiar, that 
in these circumstances rent will rise. Any land can afford to pay, 
and under free competition will pay, a rent equal to the excess of its 
produce above the return to an equal capital on the worst land, or 
under the least favourable conditions. Whenever, therefore, 
agriculture is driven to descend to worse land, or more onerous 
processes, rent rises. Its rise will be twofold, for, in the first place, 
rent in kind, or corn rent, will rise ; and in the second, since the 
value of agricultural produce has also risen, rent, estimated in 
manufactured or foreign commodities (which is represented, cceteris 
paribus J by money rent) will rise still more. 

The steps of the process (if, after what has been formerly said, 
it is necessary to retrace them) are as follows. Corn rises in price, 
to repay with the ordinary profit the capital required for producing 
additional corn on worse land or by more costly processes. So far 
as regards this additional corn, the increased price is but an equiva- 
lent for the additional expense ; but the rise, extending to all corn, 
affords on all, except the last produced, an extra profit. If the 
farmer was accustomed to produce 100 quarters of wheat at 405., and 
120 quarters are now required, of which the last twenty cannot 
be produced under 455., he obtains the extra five shilHngs on the 
entire 120 quarters, and not on the last twenty alone. He has 
thus an extra 261. beyond the ordinary profits, and this, in a state 
of free competition, he will not be able to retain. He cannot 
however be compelled to give it up to the consumer, since a less 
price than 455. would be inconsistent with the production of the last 
twenty quarters. The price, then, will remain at 455., and the 261. 
will be transferred by competition not to the consumer but to the 
landlord. A rise of rents is therefore inevitably consequent on an 
increased demand for agricultural produce, when unaccompanied by 
increased facihties for its production. A truth which, after this 
final illustration, we may henceforth take for granted. 

The new element now introduced — an increased demand for food 
—besides occasioning an increase of re*it, still further disturbs the 



INFLUENCE OF PROGRESS ON RENTS, PROFITS, &c. 713 

distribution of tlie produce between capitalists and labourers. The 
increase of population will bave diminished the reward of labour : and 
if its cost is diminished as greatly as its real remuneration, profits 
will be increased by the full amount. If, however, the increase of 
population leads to an increased production of food, which cannot 
be supphed but at an enhanced cost of production, the cost of labour 
will not be so much diminished as the real reward of it, and profits, 
therefore, will not be so much raised. It is even possible that they 
might not be raised at aU. The labourers may previously have 
been so well provided for, that the whole of what they now lose may 
be struck off from their other indulgences, and they may not, either 
by necessity or choice, undergo any reduction in the quantity or 
quahty of their food. To produce the food for the increased number 
may be attended with such an increase of expense, that wages, 
though reduced in quantity, may represent as great a cost, may 
be the product of as much labour, as before, and the capitalist may 
not be at aU benefited. On this supposition the loss to the labourer 
is partly absorbed in the additional labour required for producing 
the last instalment of agricultural produce ; and the remainder 
is gained by the landlord, the only sharer who always benefits by 
an increase of population. 

§ 2. Let us now reverse our hypothesis, and instead of sup-, 
posing capital stationary and population advancing, let us suppose 
capital advancing and population stationary ; the facihties of 
production, both natural and acquired, being, as before, unaltered. 
The real wages of labour, instead of falling, will now rise ; and 
since the cost of production of the things consumed by the labourer 
is not diminished, this rise of wages impHes an equivalent increase 
of the cost of labour, and diminution of profits. To state the same 
deduction in other terms ; the labourers not being more numerous, 
and the productive power of their labour being only the same as before, 
there is no increase of the produce ; the increase of wages, therefore, 
must be at the charge of the capitalist. It is not impossible that 
the cost of labour might be increased in even a greater ratio than its 
real remuneration. The improved condition of the labourers may 
increase the demand for food. The labourers may have been so ill 
off before, as not to have, food enough ; and may now consume 
more : or they may choose to expend their increased means partly or 
wholly in a more costly quahty of food, requiring more labour and 
more land ; wheat, for example, instead of oats, or potatoes. This 



714 BOOK IV. CHAPTER III. § 3 

extension of agriculture implies, as usual, a greater cost of production 
and a higher price, so that besides the increase of the cost of labour 
arising from the increase of its reward, there will be a further increase 
(and an additional fall of profits) from the increased costliness of 
the commodities of which that reward consists. The same causes 
will produce a rise of rent. What the capitaHsts lose, above what 
the labourers gain, is partly transferred to the landlord, and partly 
swallowed up in the cost of growing food on worse land or by a less 
productive process. 

§ 3. Having disposed of the two simple cases, an increasing 
population and stationary capital, and an increasing capital and 
stationary population, we are prepared to take into consideration the 
mixed case, in which the two elements of expansion are combined, 
both population and capital increasing. If either element increases 
faster than the other, the case is so far assimilated with one or other 
of the two preceding : we shall suppose them, therefore, to increase 
with equal rapidity ; the test of equality being, that each labourer 
obtains the same commodities as before, and the same quantity of 
those commodities. Let us examine what will be the effect, on rent 
and profits, of this double progress. 

Population having increased, without any falling off in the 
labourer's condition, there is of course a demand for more food. 
The arts of production being supposed stationary, this food must 
be produced at an increased cost. To compensate for this greater 
cost of the additional food, the price of agricultural produce must 
rise. The rise extending over the whole amount of food produced, 
though the increased expenses only apply to a part, there is a greatly 
increased extra profit, which, by competition, is transferred to the 
landlord. Rent will rise, both in quantity of produce and in cost ; 
while wages, being supposed to be the same in quantity, will be 
greater in cost. The labourer obtaining the same amount of necess- 
aries, money wages have risen ; and as the rise is common to all 
branches of production, the capitalist cannot indemnify himself 
by changing his employment, and the loss must be borne by profits. 

It appears, then, that the tendency of an increase of capital and 
population is to add to rent at the expense of profits : though rent 
does not gain all that profits lose, a part being absorbed in increased 
expenses of production, that is, in hiring or feeding a greater number 
of labourers to obtain a given amount of agricultural produce. By 
profits, must of course be understood the rate of profit; for a lower 



INFLUENCE OF PROGRESS ON RENTS, PROFITS, &c. 715 

rate of profit on a larger capital may yield a larger gross profit, 
considered absolutely, though a smaller in proportion to the entire 
produce. 

This tendency of profits to fall, is from time to time counteracted 
by improvements in production : whether arising from increase of 
knowledge, or from an increased use of the knowledge already 
possessed. This is the third of the three elements, the effects of 
which on the distribution of the produce we undertook to investi- 
gate ; and the investigation will be facilitated by supposing, as in 
the case of the other two elements, that it operates, in the first 
instance, alone. 

§ 4. Let us then suppose capital and population stationary, 
and a sudden improvement made in the arts of production ; by the 
invention of more efficient machines, or less costly processes, or by 
obtaining access to cheaper commodities through foreign trade. 

The improvement may either be in some of the necessaries or 
indulgences which enter into the habitual consumption of the 
labouring class ; or it may be appHcable only to luxuries consumed 
exclusively by richer people. Very few, however, of the great 
industrial improvements are altogether of this last description. 
Agricultural improvements, except such as specially relate to some 
of the rarer and more pecuUar products, act directly upon the prin- 
cipal objects of the labourer's expenditure. The steam-engine, 
and every other invention which affords a manageable power, are 
appHcable to all things, and of course to those consumed by the 
labourer. Even the power-loom and the spinning- jenny, though 
apphed to the most delicate fabrics, are available no less for the 
coarse cottons and woollens worn by the labouring class. All 
improvements in locomotion cheapen the transport of necessaries 
as well as of luxuries. Seldom is a new branch of trade opened, 
without, either directly or in some indirect way, causing some of the 
articles which the mass of the people consume to be either produced 
or imported at smaller cost. It may safely be affirmed, therefore, 
that improvements in production generally tend to cheapen the 
commodities on which the wages of the labouring class are expended. 

In so far as the commodities affected by an improvement are 
those which the labourers generally do not consimie, the improvement 
has no effect in altering the distribution of the produce. Those 
particular commodities, indeed, are cheapened ; being produced at 
less cost, they fall in value and in price, and all who consume them. 



716 BOOK IV. CHAPTER III. § 4 

wlietlier landlords, capitalists, or skilled and privileged labourers, 
obtain increased means of enjoyment. The rate of profits, how- 
ever, is not raised. There is a larger gross profit, reckoned in 
quantity of commodities. But the capital also, if estimated in those 
commodities, has risen in value. The profit is the same percentage 
on the capital that it was before. The capitalists are not benefited 
as capitaHsts, but as consumers. The landlords and the privileged 
classes of labourers, if they are consumers of the same commodities, 
share the same benefit. 

The case is different with improvements which diminish the cost 
of production of the necessaries of life, or of commodities which enter 
habitually into the consumption of the great mass of labourers. 
The play of the different forces being here rather complex, it is 
necessary to analyse it with some minuteness. 

As formerly observed,* there are two kinds of agricultural 
improvements. Some consist in a mere saving of labour, and enable 
a given quantity of food to be produced at less cost, but not on a 
smaller surface of land than before. Others enable a given extent 
of land to yield not only the same produce with less labour, but a 
greater produce ; so that, if no greater produce is required, a part of 
the land already under culture may be dispensed with. As the part 
rejected will be the least productive portion, the market will thence- 
forth be regulated by a better description of land than what waa 
previously the worst under cultivation. 

To place the effect of the improvement in a clear light, we must 
suppose it to take place suddenly, so as to leave no time, during its 
introduction, for any increase of capital or of population. Its first 
effect will be a fall of the value and price of agricultural produce. 
This is a necessary consequence of either kind of improvement, but 
especially of the last. 

An improvement of the first kind, not increasing the produce, 
does not dispense with any portion of the land ; the margin of culti- 
vation (as Dr. Chalmers terms it) remains where it was ; agriculture 
does not recede, either in extent of cultivated land, or in elaborateness 
of method : and the price continues to be regulated by the same land, 
and by the same capital, as before. But since that land or capital, and 
all other land or capital which produces food, now yields its produce 
at smaller cost, the price of food will fall proportionally. If one- 
tenth of the expense of production has been saved, the price of 
produce will fall one-tenth. 

»* Supra, pp. 183-4, 



INFLUENCE OF PROGRESS ON RENTS, PROFITS, &c. 717 

But suppose the improvement to be of tlie second Mnd ; enabling 
the land to produce, not only tbe same corn with one-tenth less 
labour, but a tenth more corn with the same labour. Here the effect 
is still more decided. Cultivation can now be contracted, and the 
market supplied from a smaller quantity of land. Even if this 
smaller surface of land were of the same average quahty as the larger 
surface, the price would fall one-tenth, because the same produce 
would be obtained With a tenth less labour. But since the portion 
of land abandoned will be the least fertile portion, the price of 
produce will thenceforth be regulated by a better quahty of land 
than before. In addition, therefore, to the original diminution of 
one-tenth in the cost of production, there will be a further diminution, 
corresponding with the recession of the " margin " of agriculture to 
land of greater fertihty. There will thus be a twofold fall of price. 

Let us now examine the effect of the improvements, thus suddenly 
made, on the division of the produce ; and in the first place, on rent. 
By the former of the two kinds of improvement, rent would be 
diminished. By the second, it would be diminished still more. 

Suppose that the demand for food requires the cultivation of 
three quahties of land, yielding, on an equal surface, and at an equal 
expense, 100, 80, and 60 bushels of wheat. The price of wheat will, 
on the average, be just sufficient to enable the third quahty to be 
cultivated with the ordinary profit. The first quahty therefore will 
yield forty and the second twenty bushels of extra profit, constituting 
the rent of the landlord. And first, let an improvement be made, 
which, without enabhng more corn to be grown, enables the same 
corn to be grown with one-fourth less labour. The price of wheat 
will fall one-fourth, and 80 bushels will be sold for the price for 
which 60 were sold before. But the produce of the land which 
produces 60 bushels is still required, and the expenses being as 
much reduced as the price, that land can still be cultivated with 
the ordinary profit. The first and second qualities will therefore 
continue to yield a surplus of 40 and 20 bushels, and corn rent will 
remain the same as before. But corn having fallen in price one-fourth, 
the same corn rent is equivalent to a fourth less of money and of 
all other commodities. So far, therefore, as the landlord expends 
his income in manufactured or foreign products, he is one-fourth 
worse off than before. His income as landlord is reduced to three- 
quarters of its amount : it is only as a consumer of corn that he 
is as well off. 

If the improvement is of the other kind, rent will fall in a stil] 



718 BOOK IV. CHAPTER III. § 4 

greater ratio. Suppose that the amount of produce which the 
market requires, can be grown not only with a fourth less labour, 
but on a fourth less land. If all the land already in cultivation 
continued to be cultivated, it would yield a produce much larger 
than necessary. Land, equivalent to a fourth of the produce, must 
now be abandoned ; and as the third quahty yielded exactly one- 
fourth, (being 60 out of 240,) that quahty will go out of cultivation. 
The 240 bushels can now be grown on land of the first and second 
quahties only; being, on the first, 100 bushels plus one-third, or 133J 
bushels ; on the second, 80 bushels plus one-third, or 106f bushels ; 
together 240. The second quahty of land, instead of the third, 
is now the lowest, and regulates the price. Instead of 60, it is 
sufficient if 106f bushels repay the capital with the ordinary profit. 
The price of wheat will consequently fall, not in the ratio of 60 to 80, 
as in the other case, but in the ratio of 60 to 106f . Even this gives 
an insufficient idea of the degree in which rent will be affected. The 
whole produce of the second quahty of land will now be required to 
repay the expenses of production. That land, being the worst in 
cultivation, will pay no rent. And the first quahty will only yield 
the difference between 133J bushels and 106f, being 26f bushels 
instead of 40. The landlords collectively will have lost 33 J out of 60 
bushels in corn rent alone, while the value and price of what is left 
will have been diminished in the ratio of 60 to 106f . 

It thus appears, that the interest of the landlord is decidedly 
hostile to the sudden and general introduction of agricultural 
improvements. This assertion has been called a paradox, and made 
a ground for accusing its first promulgator, Eicardo, of great intel- 
lectual perverseness, to say nothing worse. I cannot discern in 
what the paradox consists ; and the obliquity of vision seems to me 
to be on the side of his assailants. The opinion is only made to 
appear absurd by stating it unfairly. If the assertion were that a 
landlord is injured by the improvement of his estate, it would cer- 
tainly be indefensible ; but what is asserted is, that he is injured by 
the improvement of the estates of other people, although his own is 
included. Nobody doubts that he would gain greatly by the im- 
provement if he could keep it to himself, and unite the two benefits, 
an increased produce from his land, and a price as high as before. 
But if the increase of produce took place simultaneously on all lands, 
the price would not be as high as before ; and there is nothing im- 
reasonable in supposing that the landlords would be, not benefited, 
but injured. It is admitted that whatever permanently reduces 



INFLUENCE OF PROGRESS ON RENTS, PROFITS, &c. 71§ 

the price of produce diminislies rent : and it is quite in accordance 
with conimon notions to suppose that if, by the increased produc- 
tiveness of land, less land were required for cultivation, its value, 
Hke that of other articles for which the demand had diminished, 
would fall. 

I am quite willing to admit that rents have not really been 
lowered by the progress of agricultural improvement ; but why ? 
Because improvement has never in reahty been sudden, but always 
slow ; at no time much outstripping, and often falling far short of, 
the growth of capital and population, which tends as much to raise 
rent, as the other to lower it, and which is enabled, as we shall 
presently see, to raise it much higher, by means of the additional 
margin afforded by improvements in agriculture. First, however, 
we must examine in what manner the sudden cheapening of agricul- 
tural produce would affect profits and wages. 

In the beginning, money wages would probably remain the same 
as before, and the labourers would have the full benefit of the 
cheapness. They would be enabled to increase their consumption 
either of food or of other articles, and would receive the same cost, 
and a greater quantity. So far, profits would be unaffected. But 
the permanent remuneration of the labourers essentially depends on 
what we have called their habitual standard ; the extent of the 
requirements which, as a class, they insist on satisfying before they 
choose to have children. If their tastes and requirements receive a 
durable impress from the sudden improvement in their condition, 
the benefit to the class will be permanent. But the same cause which 
enables them to purchase greater comforts and indulgences with the 
same wages, would enable them to purchase the same amount 
of comforts and indulgences with lower wages ; and a greater popu- 
lation may now exist, without reducing the labourers below the 
condition to which they are accustomed. Hitherto this and no other 
has been the use which the labourers have commonly made of any 
increase of their means of Hving ; they have treated it simply as 
convertible into food for a greater number of children. It is prob- 
able, therefore, that population would be stimulated, and that after 
the lapse of a generation the real wages of labour would be no higher 
than before the improvement : the reduction being partly brought 
about by a fall of money wages, and partly through the price of 
food, the cost of which, from the demand occasioned by the in- 
crease of population, would be increased. To the extent to which 
money wages fell, profits would rise ; the capitalist obtaining a 



no BOOK IV. CHAPTER III. § 5 

greater quantity of equally efficient labour by the same outlay of 
capital. We thus see that a diminution of the cost of living, 
whether arising from agricultural improvements or from the 
importation of foreign produce, if the habits and requirements of 
the labourers are not raised, usually lowers money wages and rent, 
and raises the general rate of profit. 

What is true of improvements which cheapen the production of 
food, is true also of the substitution of a cheaper for a more costly 
variety of it. The same land yields to the same labour a much 
greater quantity of human nutriment in the form of maize or potatoes, 
than in the form of wheat. If the labourers were to give up bread, 
and feed only on those cheaper products, taking as their compensa- 
tion, not a greater quantity of other consumable commodities, but 
earlier marriages and larger families, the cost of labour would be 
much diminished, and if labour continued equally efficient, profits 
would rise ; while rent would be much lowered, since food for the 
whole population could be raised on half or a third part of the land 
now sown with corn. At the same time, it being evident that land 
too barren to be cultivated for wheat might be made in case of 
necessity to yield potatoes sufficient to support the Httle labour 
necessary for producing them, cultivation might ultimately descend 
lower, and rent eventually rise higher, on a potato or maize system, 
than on a corn system ; because the land would be capable of feeding 
a much larger population before reaching the limit of its powers. 

If the improvement, which we suppose to take place, is not in the 
production of food, but of some manufactured article consumed by 
the labouring class, the effect on wages and profits will at first be 
the same ; but the effect on rent very different. It will not be 
lowered ; it will even, if the ultimate effect of the improvement is 
an increase of population, be raised : in which last case profits will 
be lowered. The reasons are too evident to require statement. 

§ 5. We have considered, on the one hand, the manner in 
which the distribution of the produce into rent, profits, and wages, 
is affected by the ordinary increase of population and capital, and on 
the other, how it is affected by improvements in production, and more 
especially in agriculture. We have found that the former cause 
lowers profits ; and raises rent and the cost of labour : while the 
tendency of agricultural improvements is to diminish rent ; and all 
improvements which cheapen any article of the labourer's consump- 
tion, tend to diminish the cost of labour and to raise profits. The 



INFLUENCE OF PROGRESS ON RENTS, PROFITS, &c. 721 

tendency of each cause iu its separate state being thus ascertainedj 
it is easy to determine the tendency of the actual course of things, 
in which the two movements • are going on simultaneously, capital 
and population increasing with tolerable steadiness, while improve- 
ments in agriculture are made from time to time, and the knowledge 
and practice of improved methods become difiused gradually through 
the community. 

The habits and requirements of the labouring classes being given 
(which determine their real wages), rents, profits, and money wages 
at any given time, are the result of the composition of these rival 
forces. If during any period agricultural improvement advances 
faster than population, rent and money wages during that period will 
tend downward, and profits upward. If population advances more 
rapidly than agricultural improvement, either the labourers will 
submit to a reduction in the quantity or quahty of their food, or if not, 
rent and money wages will progressively rise, and profits will fall. 

Agricultural skiU and knowledge are of slow growth, and still 
glower diffusion. Inventions and discoveries, too, occur only 
occasionally, while the increase of population and capital are con- 
tinuous agencies. It therefore seldom happens that improvement^ 
even during a short time, has so much the start of population and 
capital as actually to lower rent, or raise the rate of profits. There 
are many countries in which the growth of population and capital 
is not rapid, but in these agricultural improvement is less active 
still. Population almost everywhere treads close on the heels of 
agricultural improvement, and effaces its effects as fast as they 
are produced. 

The reason why agricultural improvement seldom lowers rent, 
is that it seldom cheapens food, but only prevents it from growing 
dearer ; and seldom, if ever, throws land out of cultivation, but only 
enables worse and worse land to be taken in for the supply of an 
increasing demand. What is sometimes called the natural state of 
a country which is but half cultivated, namely, that the land is 
highly productive, and food obtained in great abundance by Httle 
labour, is only true of unoccupied countries colonized by a civihzed 
people. In the United States the worst land in cultivation is of a 
high quality (except sometimes in the irmnediate vicinity of markets 
or means of conveyance, where a bad quality is compensated by a good 
situation) ^ ; and even if no further improvements were made in 

1 [Parenthesis added in 2nd ed. (1849).] 



722 BOOK IV. CHAPTER III. § 5 

agriculture or locomotion, cultivation would have many steps yet to 
descend, before the increase of population and capital would be 
brought to a stand ; but in Europe five hundred years ago, though 
so thinly peopled in comparison to the present population, it is 
probable that the worst land under the plough was, from the rude 
state of agriculture, quite as unproductive as the worst land now 
cultivated ; and that cultivation had approached as near to the 
ultimate limit of profitable tillage, in those times as in the present. 
What the agricultural improvements since made have really done is, 
by increasing the capacity of production of land in general, to enable 
tillage to extend downwards to a much worse natural quaUty of land 
than the worst which at that time would have admitted of cultiva- 
tion by a capitaHst for profit ; thus rendering a much greater 
increase of capital and population possible, and removing always a 
little and a Uttle further ofi the barrier which restrains them ; popu- 
lation meanwhile always pressing so hard against the barrier, that 
there is never any visible margin left for it to seize, every inch of 
ground made vacant for it by improvement being at once filled up 
by its advancing columns. Agricultural improvement may thus 
be considered to be not so much a counterforce conflicting with 
increase of population, as a partial relaxation of the bonds which 
confine that increase. 

The effects produced on the division of the produce by an 
increase of production, under the joint influence of increase of popu- 
lation and capital and improvements of agriculture, are very different 
from those deduced from the hypothetical cases previously discussed. 
In particular, the effect on rent is most materially different. We 
remarked that — while a great agricultural improvement made sud- 
denly and universally would in the first instance inevitably lowel 
rent — such improvements enable rent, in the progress of society, to 
rise gradually to a much higher limit than it could otherwise attain, 
since they enable a much lower quahty of land to be ultimately 
cultivated. But in the case we are now supposing, which nearly 
corresponds to the usual course of things, this ultimate effect becomes 
the immediate effect. Suppose cultivation to have reached, or 
almost reached, the utmost Hmit permitted by the state of the 
industrial arts, and rent, therefore, to have attained nearly the 
highest point to which it can be carried by the progress of population 
and capital, with the existing amount of skill and knowledge. If 
a great agricultural improvement were suddenly introduced, it might 
throw back rent for a considerable space, leaving it to regain its 



INFLUENCE OF PROGRESS ON RENTS, PROFITS, &c. 723 

lost ground by tlie progress of population and capital, and after- 
wards to go on further. But, taking place, as such improvement 
always does, very gradually, it causes no retrograde movement 
of either rent or cultivation ; it merely enables the one to go on rising, 
and the other extending, long after they must otherwise have 
stopped. It would do this even without the necessity of resorting 
to a worse quality of land ; simply by enabhng the lands already in 
cultivation to yield a greater produce, with no increase of the pro- 
portional cost. If, by improvements of agriculture, all the lands in 
cultivation could be made, even with double labour and capital, 
to yield a double produce, (supposing that in the meantime popula- 
tion increased so as to require this double quantity) all rents would be 
doubled. 

To illustrate the point, let us revert to the numerical example in a 
former page. Three quaUties of land yield respectively 100, 80, and 
60 bushels to the same outlay on the same extent of surface. If 
No. 1 could be made to yield 200, No. 2, 160, and No. 3, 120 bushels, 
at only double the expense, and therefore without any increase of 
the cost of production, and if the population, having doubled, 
required all this increased quantity, the rent of No. 1 would be 80 
bushels instead of 40, and of No. 2, 40 instead of 20, while the price 
and value per bushel would be the same as before : so that corn rent 
and money rent would both be doubled. I need not point out the 
difference between this result, and what we have shown would take 
place if there were an improvement in production without the 
accompaniment of an increased demand for food. 

Agricultural improvement, then, is always ultimately, and in 
the manner in which it generally takes place also immediately, 
beneficial to the landlord. We may add, that when it takes place 
in that manner, it is beneficial to no one else. When the demand 
for produce fully keeps pace with the increased capacity of pro- 
duction, food is not cheapened ; the labourers are not, even tem- 
porarily, benefited ; the cost of labour is not diminished, nor profits 
raised. There is a greater aggregate production, a greater produce 
divided among the labourers, and a larger gross profit ; but the 
wages being shared among a larger population, and the profits 
spread over a larger capital, no labourer is better off, nor does any 
capitaHst derive from the same amount of capital a larger income. 

The result of this long investigation may be summed up as 
follows. The economical progress of a society constituted of 
l^ndlordsj capitalists, and labourerSj tends to the progressiva 



^ 



724 BOOK IV. CHAPTER III. § 5 

enricliment of th e landlord class ; ^ while tlie cost of the labourer's ' 
subsistence tends on the whole to increase,^ and profits to fall. 
Agricultural improvements are a counteracting force to the two lasl 
effects ; but the first, though a case is conceivable in which it would 
be temporarily checked, is ultimately in a high degree promoted by 
those improvements ; and the increase of population tends to 
transfer all the benefits derived from agricultural improvement 
to the landlords alone. What other consequences^ in addition to 
these, or in modification of them, arise from the industrial progress 
of a society thus constituted, I shall endeavour to show in the 
Bucceeding chapter. 

^ [See Appendix Z. Rents in the I9ih Century.] 
2 [See Appendix A A. Wages in the I9th Century. '\ 



CHAPTER rV 

OP THE TENDENCY OF PROFITS TO A MINIMUM 

§ 1. The tendency of profits to fall as society advances, which 
has been brought to notice in the preceding chapter, was early 
recognized by writers on industry and commerce ; but the laws 
which govern profits not being then understood, the phenomenon 
was ascribed to a wrong cause. Adam Smith considered profits to 
be determined by what he called the competition of capital ; and 
concluded that when capital increased, this competition must hke- 
wise increase, and profits must fall. It is not quite certain what 
sort of competition Adam Smith had here in view. His words in 
the chapter on Profits of Stock * are, " When the stocks of many 
rich merchants are turned into the same trade, their mutual com- 
petition naturally tends to lower its profits ; and when there is a 
like increase of stock in all the different trades carried on in the 
same society, the same competition must produce the same effect in 
them all." This passage would lead us to infer that, in Adam Smith's 
opinion, the manner in which the competition of capital lowers 
profits is by lowering prices ; that being usually the mode in which 
an increased investment of capital in any particular trade, lowers 
the profits of that trade. But if this was his meaning, he over- 
looked the circumstance, that the fall of price, which if confined to 
one commodity really does lower the profits of the producer, ceases 
to have that effect as soon as it extends to all commodities ; because, 
when all things have fallen, nothing has really fallen, except nomin- 
ally ; and even computed in money, the expenses of every producer 
have diminished as much as his returns. Unless indeed labour be 
the one commodity which has not fallen in money price, when all 
other things have : if so, what has really taken place is a rise of 
wages ; and it is that, and not the fall of prices, which has lowered 

* Wealth of Nations, book i. ch. 9. 



726 BOOK IV. CHAPTER IV. § 1 

tlie profits of capital. There is another thing which escaped the 
notice of Adam Smith ; that the supposed universal fall of prices, 
through increased competition of capitals, is a thing -which cannot 
take place. Prices are not determined by the competition of the 
sellers only, but also by that of the buyers ; by demand as well as 
supply. The demand which affects money prices consists of all 
the money in the hands of the community, destined to be laid out 
in commodities ; and as long as the proportion of this to the com- 
modities is not diminished, there is no fall of general prices. Now, 
howsoever capital may increase, and give rise to an increased pro- 
duction of commodities, a full share of the capital will be drawn to 
the business of producing or importing money, and the quantity of 
money will be augmented in an equal ratio with the quantity of 
commodities. For if this were not the case, and if money, there- 
fore, were, as the theory supposes, perpetually acquiring increased 
purchasing power, those who produced or imported it would obtain 
constantly increasing profits ; and this could not happen without 
attracting labour and capital to that occupation from other employ- 
ments. If a general fall of prices, and increased value of money, 
were really to occur, it could only be as a consequence of increased 
cost of production, from the gradual exhaustion of the mines. 

It is not tenable, therefore, in theory, that the increase of capital 
produces, or tends to produce, a general decHne of money prices. 
Neither is it true, that any general decUne of prices, as capital 
increased, has manifested itself in fact. The only things observed 
to fall in price with the progress of society, are those in which there 
have been improvements in production, greater than have taken 
place in the production of the precious metals ; as for example, all 
spun and woven fabrics. Other things, again, instead of falHng, 
have risen in price, because their cost of production, compared 
with that of gold and silver, has increased. Among these are all 
kinds of food, comparison being made with a much earher period of 
history. The doctrine, therefore, that competition of capital lowers 
profits by lowering prices, is incorrect in fact, as well as unsound in 
principle. 

But it is not certain that Adam Smith really held that doctrine ; 
for his language on the subject is wavering and unsteady, denoting 
the absence of a definite and well-digested opinion. Occasionally 
he seems to think that the mode in which the competition of capital 
lowers profits, is by raising wages. And when speaking of the rate 
of profit in new colonies, he seems on the very verge of grasping the 



TENDENCY OF PROFITS lu A MINIMUM 727 

complete theory of the subject. " As the colony increases, the 
profits of stock gradually diminish. When the most fertile and best 
situated lands have been all occupied, less profit can be made by 
the cultivators of what is inferior both in soil and situation." Had 
Adam Smith meditated longer on the subject, and systematized 
his view of it by harmonizing with each other the various ghmpses 
which he caught of it from different points, he would have per- 
ceived that this last is the true cause of the fall of profits usually 
consequent upon increase of capital. 

§ 2. Mr. Wakefield, in his Commentary on Adam Smith, and 
his important writings on Colonization, takes a much clearer view of 
the subject, and arrives, through a substantially correct series of 
deductions, at practical conclusions which appear to me just and 
important ; but he is not equally happy in incorporating his valuable 
speculations with the results of previous thought, and reconciling 
them with other truths. Some of the theories of Dr. Chalmers, in 
his chapter " On the Increase and Limits of Capital," and the two 
chapters which follow it, coincide in their tendency and spirit with 
those of Mr. Wakefield ; but Dr. Chalmers' ideas, though delivered, 
as is his custom, with a most attractive semblance of clearness, are 
really on this subject much more confused than even those of Adam 
Smith, and more decidedly infected with the often refuted notion 
that the competition of capital lowers general prices ; the subject 
of Money apparently not having been included among the parts of 
political economy which this acute and vigorous writer had care- 
fully studied. 

Mr. Wakefield's explanation of the fall of profits is briefly this. 
Production is limited not solely by the quantity of capital and of 
labour, but also by the extent of the " field of employment." The 
field of employment for capital is twofold ; the land of the country, 
and the capacity of foreign markets to take its manufactured com- 
modities. On a limited extent of land, only a limited quantity of 
capital can find employment at a profit. As the quantity of capital 
approaches this limit, profit falls ; when the Hmit is attained, profit 
is annihilated ; and can only be restored through an extension of 
the field of employment, either by the acquisition of fertile land, or 
by opening new markets in foreign countries, from which food and 
materials can be purchased with the products of domestic capital. 
These propositions are, in my opinion, substantially true ; and, 
even to the phraseology ip which they are expressed, considered as 



728 BOOK IV. CHAPTER IV. § 3 

adapted to popular and practical rather than scientific uses, I have 
nothing to object. The error which seems to me imputable to Mr. 
Wakefield is that of supposing his doctrines to be in contradiction 
to the principles of the best school of preceding poHtical economists, 
instead of being, as they really are, corollaries from those principles ; 
though corollaries which, perhaps, would not always have been 
admitted by those political economists themselves. 

The most scientific treatment of the subject which I have met 
with is in an essay on the effects of Machinery, pubHshed in the 
Westminster Review for January 1826, by Mr. William Ellis : * 
which was dpubtless unknown to Mr. Wakefield, but which had pre- 
ceded him, though by a different path, in several of his leading 
conclusions. This essay excited little notice, partly from being 
published anonymously in a periodical, and partly because it was 
much in advance of the state of poHtical economy at the time. In Mr. 
Ellis's view of the subject, the questions and difficulties raised by 
Mr. Wakefield's speculations and by those of Dr. Chalmers, find a 
solution consistent with the principles of political economy laid 
down in the present treatise. 

§ 3. There is at every time and place some particular rate of 
profit, which is the lowest that will induce the people of that country 
and time to accumulate savings, and to employ those savings pro- 
ductively. This minimum rate of profit varies according to cir- 
cumstances. It depends on two elements. One is, the strength of 
the effective desire of accumulation ; the comparative estimate, 
made by the people of that place and era, of future interests when 
weighed against present. This element chiefly affects the inclina- 
tion to save. The other element, which affects not so much the 
willingness to save as the disposition to employ savings produc- 
tively, is the degree of security of capital engaged in industrial 
operations. A state of general insecurity no doubt affects also the 
disposition to save. A hoard may be a-source of additional danger 
to its reputed possessor. But as it may also be a powerful means 
of averting dangers, the effects in this respect may perhaps be looked 
upon as balanced. But in employing any funds which a person 
may possess as capital on his own account, or in lending it to others 
to be so employed, there is always some additional risk, over and 

* [1862] Now so much better known through his apostolic exertions, by 
pen, purse, and person, for the improvement of popular education, and especi 
ally for the introduction into it of the elements of practical political economy. 



TENDENCY OF PROFITS TO A MINIMUM 729 

above that incurred by keeping it idle in his own custody. This 
extra risk is great in proportion as the general state of society is 
insecure : it may be equivalent to twenty, thirty, or fifty per cent, 
or to no more than one or two ; something, however, it must always 
be : and for this, the expectation of profit must be sufiS.cient to 
compensate. 

There would be adequate motives for a certain amount of saving, 
even if capital yielded no profit. There would be an inducement to 
lay by in good times a provision for bad ; to reserve something for 
sickness and infirmity, or as a means of leisure and independence in 
the latter part of life, or a help to children in the outset of it. Savings, 
however, which have only these ends in view, have not much tend- 
ency to increase the amount of capital permanently in existence. 
These motives only prompt persons to save at one period of Hfe 
what they purpose to consume at another, or what will be con- 
sumed by their children before they can completely provide for 
themselves. The savings by which an addition is made to the 
national capital usually emanate from the desire of persons to 
improve what is termed their condition in life, or to make a pro- 
vision for children or others, independent of their exertions. Now, 
to the strength of these inclinations it makes a very material difier- 
ence how much of the desired object can be effected by a given 
amount and duration of self-denial ; which again depends on the 
rate of profit. And there is in every country some rate of profit, 
below which persons in general will not find sufficient motive to 
save for the mere purpose of growing richer, or of leaving others 
better off than themselves. Any accumulation, therefore, by 
which the general capital is increased, requires as its necessary con- 
dition a certain rate of profit ; a rate which an average person will 
deem to be an equivalent for abstinence, with the addition of a 
sufficient insurance against risk. There are always some persons in 
whom the effective desire of accumulation is above the average, 
and to whom less than this rate of profit is a sufficient inducement to 
save ; but these merely step into the place of others whose taste for 
expense and indulgence is beyond the average, and who, instead of 
saving, perhaps even dissipate what they have received. 

I have already observed that this minimum rate of profit, less 
than which is not consistent with the further increase of capital, is 
lower in some states of society than in others ; and I may add, that 
the kind of social progress characteristic of our present civilization 
tends to diminish it. In the first place, one of the acknowledged 



730 BOOK IV. CHAPTER IV. § 3 

efiects of tliat progress is an increase of general security. Destruction 
by wars, and spoliation by private or public violence, are less and 
less to be apprehended ; and the improvements which may be 
looked for in education and in the administration of justice, or, in 
their default, increased regard for opinion, afford a growing protec- 
tion against fraud and reckless mismanagement. The risks attend- 
ing the investment of savings in productive employment require, 
therefore, a smaller rate of profit to compensate for them than was 
required a century ago, and will hereafter require less than at 
present. In the second place, it is also one of the consequences of 
civilization that mankind become less the slaves of the moment, and 
more habituated to carry their desires and purposes forward into a 
distant future. This increase of providence is a natural result of 
the increased assurance with which futurity can be looked forward 
to ; and is, besides, favoured by most of the influences which an 
industrial life exercises over the passions and incUnations of human 
nature. In proportion as life has fewer vicissitudes, as habits become 
more fixed, and great prizes are less and less to be hoped for by any 
other means than long perseverance, mankind become more willing 
to sacrifice present indulgence for future objects. This increased 
capacity of forethought and self-control may assuredly find other 
things to exercise itself upon than increase of riches, and some 
considerations connected with this topic will shortly be touched upon. 
The present kind of social progress, however, decidedly tends, 
though not perhaps to increase the desire of accumulation, yet to 
weaken the obstacles to it, and to diminish the amount of profit 
which people absolutely require as an inducement to save and 
accumulate. For these two reasons, diminution of risk and increase 
of providence, a profit or interest of three or four per cent is as 
sufiicient a motive to the increase of capital in England at the 
present day, as thirty or forty per cent in the Burmese Empire, 
or in England at the time of King John. In Holland during the last 
century a return of two per cent on government security, was 
consistent with an undiminished, if not with an increasing, capital. 
But though the minimum rate of profit is thus liable to vary, and 
though to specify exactly what it is would at any given time be 
impossible, such a minimum always exists ; and whether it be high 
or low, when once it is reached, no further increase of capital can 
for the present take place. The country has then attained what 
is known to political economists under the name of the stationary 
state. 



§ 4. We now arrive at the fundamental proposition wliich 
this chapter is intended to inculcate. When a country has long 
possessed a large production, and a large net income to make 
savings from, and when, therefore, the means have long existed 
of making a great annual addition to capital ; (the country not 
having, Hke America [1848], a Jarge reserve of fertile land still 
unused ;) it is one of the characteristics of such a country, that the 
rate of profit is habitually within, as it were, a hand's breadth of the 
minimum, and the country therefore on the very verge of the 
stationary state. By this I do not mean that this state is Hkely, 
in any of the great countries of Europe, to be soon actually reached, 
or that capital does not still yield a profit considerably greater than 
what is barely sufficient to induce the people of those countries 
to save and accumulate. My meaning is, that it would require 
but a short time to reduce profits to the minimum, if capital con- 
tinued to increase at its present rate, and no circumstances having a 
tendency to raise the rate of profit occurred in the meantime. The 
expansion of capital would soon reach its ultimate boundary, if 
the boundary itself did not continually open and leave more space. 

In England, the ordinary rate of interest on government securities, 
in which the risk is next to nothing, may be estimated [1848] at a 
httle more than three per cent : in all other investments, therefore, 
the interest or profit calculated upon (exclusively of what is properly 
a remuneration for talent or exertion) must be as much more than 
this amount as is equivalent to the degree of risk to which the 
capital is thought to be exposed. Let us suppose that in England 
even so small a net profit as one per cent, exclusive of insurance 
against risk, would constitute a sufficient inducement to save, but 
that less than this would not be a sufficient inducement. I now say, 
that the mere continuance of the present annual increase of capital, 
if no circumstance occurred to counteract its efiect, would suffice 
in a small number of years to reduce the rate of net profit to one 
per cent. 

To fulfil the conditions of the hypothesis, we must suppose an 
entire cessation of the exportation of capital for foreign investment. 
No more capital sent abroad for railways or loans ; no more emi- 
grants taking capital with them, to the colonies, or to other countries ; 
no fresh advances made, or credits given, by bankers or merchants 
to their foreign correspondents. We must also assume that there 
are no fresh loans for unproductive expenditure, by the government, 
or on mortgage, or .otherwise ; and none of the waste of capital 



which now takes place by the failure of undertakings which people 
are tempted to engage in by the hope of a better income than can 
be obtained in safe paths at the present habitually low rate of profit. 
We must suppose the entire savings of the community to be annually 
invested in really productive employment within the country itself ; 
and no new channels opened by industrial inventions, or by a more 
extensive substitution of the best known processes for inferior ones. 

Few persons would hesitate to say, that there would be great 
difficulty in finding remunerative employment every year for so 
much new capital, and most would conclude that there would be 
what used to be termed a general glut ; that commodities would 
be produced, and remain unsold, or be sold only at a loss. But the 
full examination which we have already given to this question,* 
has shown that this is not the mode in which the inconvenience 
would be experienced. The difficulty would not consist in any 
want of a market. If the new capital were duly shared among 
many varieties of employment, it would raise up a demand for its 
own produce, and there would be no cause why any part of that 
produce should remain longer on hand than formerly. What would 
really be, not merely difficult, but impossible, would be to employ 
this capital without submitting to a rapid reduction of the rate of 
profit. 

As capital increased, population either would also increase, or 
it would not. If it did not, wages would rise, and a greater capital 
would be distributed in wages among the same number of labourers. 
There being no more labour than before, and no improvements to 
render the labour more efficient, there would not be any increase of 
the produce ; and as the capital, however largely increased, would 
only obtain the same gross return, the whole savings of each year 
would be exactly so much subtracted from the profits of the next 
and of every following year. It is hardly necessary to say that in 
such circumstances profits would very soon fall to the point at 
which further increase of capital would cease. An augmentation 
of capital, much more rapid than that of population, must soon 
reach its extreme Umit, unless accompanied by increased efficiency 
of labour (through inventions and discoveries, or improved mental 
and physical education), or unless some of the idle people, or of the 
unproductive labourers, became productive. 

If population did increase with the increase of capital and in 

* Book iii. oh. 14. 



proportion to it, the fall of profits would still be inevitable. In- 
creased population implies increased demand for agricultural produce. 
In the absence of industrial improvements, this demand can only 
be supplied at an increased cost of production, either by cultivating 
worse land, or by a more elaborate and costly cultivation of the 
land already under tillage. The cost of the labourer's subsistence is 
therefore increased ; and unless the labourer submits to a deterio- 
ration of his condition, profits must fall. In an old country like 
England, if, in addition to supposing all improvement in domestic 
agriculture suspended, we suppose that there is no increased pro- 
duction in foreign countries for the EngHsh market, the fall of 
profits would be very rapid. If both these avenues to an increased 
supply of food were closed, and population continued to increase, 
as it is said to do, at the rate of a thousand a day, all waste land 
which admits of cultivation in the existing state of knowledge 
would soon be cultivated, and the cost of production and price of 
food would be so increased,, that, if the labourers received the 
increased money wages necessary to compensate for their increased 
expenses, profits would very soon reach the minimum. The fall of 
profits would be retarded if money wages did not rise, or rose in a less 
degree ; but the margin which can be gained by a deterioration of 
the labourers' condition is a very narrow one : in general they 
cannot bear much reduction ; when they can, they have also a 
higher standard of necessary requirements, and will not. On the 
whole, therefore, we may assume that in such a country as England, 
if the present annual amount of savings were to continue, without 
any of the counteracting circumstances which now keep in check 
the natural influence of those savings in reducing profit, the rate of 
profit would speedily attain the minimum, and all further accumu- 
lation of capital would for the present cease. 

§ 5. What, then, are these counteracting circumstances, 
which, in the existing state of things, maintain a tolerably equal 
struggle against the downward tendency of profits, and prevent the 
great annual savings which take place in this country from depressing 
the rate of profit much nearer to that lowest point to which it is 
always tending, and which, left to itself, it would so promptly 
attain ? The resisting agencies are of several kinds. 

First among them, we may notice one which is so simple and 
so conspicuous, that some political economists, especially M. de 
Sismondi and Dr. Chalmers, have attended to it almost to the 



exclusion of all others. This is, the waste of capital in periods 
of over-trading and rash speculation, and in the commercial revul- 
sions by which such times are always followed. It is true that a 
great part of what is lost at such periods is not destroyed, but 
merely transferred, like a gambler's losses, to more successful 
speculators. But even of these mere transfers, a large portion is 
always to foreigners, by the hasty purchase of unusual quantities 
of foreign goods at advanced prices. And much also is absolutely 
wasted. Mines are opened, railways or bridges made, and many 
other works of uncertain profit commenced, and in these enterprises 
much capital is sunk which yields either no return, or none adequate 
to the outlay. Factories are built and machinery erected beyond 
what the market requires, or can keep in employment. Even 
if they are kept in employment, the capital is no less sunk ; it has 
been converted from circulating into fixed capital, and has ceased 
to have any infiuence on wages or profits. Besides this, there is a 
great unproductive consumption of capital, during the stagnation 
which follows a period of general over-trading. Establishments 
are shut up, or kept worldng without any profit, hands are discharged, 
and numbers of persons in all ranks, being deprived of their income, 
and thrown for support on their savings, find themselves, after the 
crisis has passed away, in a condition of more or less impoverishment. 
Such are the effects of a commercial revulsion : and that such 
revulsions are almost periodical, is a consequence of the very 
tendency of profits which we are considering. By the time a few 
years have passed over without a crisis, so much additional capital 
has been accumulated, that it is no longer possible to invest it 
at the accustomed profit : all pubHc securities rise to a high price, the 
rate of interest on the best mercantile security falls very low, 
and the complaint is general among persons in business that no 
money is to be made. Does not this demonstrate how speedily 
profit would be at the minimum, and the stationary condition of 
capital would be attained, if these accumulations went on without 
any counteracting principle ? But the diminished scale of all safe 
gains inclines persons to give a ready ear to any projects which 
hold out, though at the risk of loss, the hope of a higher rate of profit ; 
and speculations ensue, which, with the subsequent revulsions, 
destroy, or transfer to foreigners, a considerable amount of capital, 
produce a temporary rise of interest and profit, make room for fresh 
accumulations, and the same round is recommenced. 

This, doubtless, is one considerable cause which arrests profits 



TENDENCY OF PROFITS TO A MINIMUM 73g 

in their descent to the minimum, by sweeping away from time to 
time a part of the accumulated mass by which they are forced down. 
But this is not, as might be inferred from the language of some 
writers, the principal cause. If it were, the capital of the country 
would not increase ; but in England it does increase greatly and 
rapidly. This is shown by the increasing productiveness of almost 
all taxes, by the continual growth of all the signs of national wealth, 
and by the rapid increase of population, while the condition of the 
labourers is certainly not declining, but on the whole improving.^ 
These things prove that each commercial revulsion, however 
disastrous, is very far from destroying aU the capital which has been 
added to the accumulations of the country since the last revulsion 
preceding it, and that, invariably, room is either found or made for 
the profitable employment of a perpetually increasing capital, 
consistently with not forcing down profits to a lower rate. 

§ 6. This brings us to the second of the counter-agencies, 
namely, improvements in production. These evidently have 
the effect of extending what Mr. Wakefield terms the field of employ- 
ment, that is, they enable a greater amount of capital to be accumu- 
lated and employed without depressing the rate of profit : provided 
always that they do not raise, to a proportional extent, the habits 
and requirements of the labourer. If the labouring class gain the 
full advantage of the increased cheapness, in other words, if money 
wages do not fall, profits are not raised, nor their fall retarded. 
But if the labourers people up to the improvement in their condition, 
and so relapse to their previous state, profits will rise. All inven- 
tions which cheapen any of the things consumed by the labourers, 
unless their requirements are raised in an equivalent degree, in time 
lower money wages : and by doing so, enable a greater capital to 
be accumulated and employed, before profits fall back to what 
they were previously. 

Improvements which only affect things consumed exclusively by 
the richer classes, do not operate precisely in the same manner. 
The cheapening of lace or velvet has no effect in diminishing the 
cost of labour ; and no mode can be pointed out in which it can 
raise the rate of profit, so as to make room for a larger capital before 
the minimum is attained. It, however, produces an effect which 
is virtually equivalent ; it lowers, or tends to lower, the minimum 

> [So since the 6th ed. (1865). The original (1848) ran i ** the condition 
el the labourers certainly is not on the whole declining."] 



73S BOOK IV. CHAPTER IV. § 7 

itself. In the first place, increased cheapness of articles of consump- 
tion promotes the inclination to save, by affording to all consumers 
a surplus which they may lay by, consistently with their accustomed 
manner of Hving ; and unless they were previously suffering actual 
hardships, it will require little self-denial to save some part at least 
of this surplus. In the next place, whatever enables people to live 
equally well on a smaller income, inclines them to lay by capital for 
a lower rate of profit. If people can live on an independence of 500?. 
a year in the same manner as they formerly could on one of 1000?., 
some persons will be induced to save in hopes of the one, who 
would have been deterred by the more remote prospect of the other. 
All improvements, therefore, in the production of almost any com- 
modity, tend in some degree to widen the interval which has to be 
passed before arriving at the stationary state : but this effect 
belongs in a much greater degree to the improvements which affect 
the articles consumed by the labourer, since these conduce to it in 
two ways ; they induce people to accumulate for a lower profit, 
and they also raise the rate of profit itself. 

§ 7. Equivalent in effect to improvements in production, 
is the acquisition of any new power of obtaining cheap commodities 
from foreign countries. If necessaries are cheapened, whether 
they are so by improvements at home or importation from abroad, 
is exactly the same thing to wages and profits. Unless the labourer 
obtains, and by an improvement of his habitual standard, keeps, 
the whole benefit, the cost of labour is lowered, and the rate of profit 
raised. As long as food can continue to be imported for an increasing 
population without any diminution of cheapness, so long the 
declension of profits through the increase of population and capital 
is arrested, and accumulation may go on without making the rate 
of profit draw nearer to the minimum. And on this ground it is 
believed by some, that the repeal of the corn laws has opened 
to this country a long era of rapid increase of capital with an 
undiminished rate of profit. 

Before inquiring whether this expectation is reasonable, one 
remark must be made, which is much at variance with commonly 
received notions. Foreign trade does not necessarily increase the 
field of employment for capital. It is not the mere opening of a 
market for a country's productions, that tends to raise the rate 
of profits. If nothing were obtained in exchange for those pro- 
ductions but the luxuries of the rich, the expenses of no capitaHst 



TENDENCY OF PROFITS TO A MINIMUM 737 

would be dimimshed ; profits would not be at all raised, nor room 
made for the accumulation of more capital without submitting to a 
reduction of profits : and if the attainment of the stationary state 
were at all retarded, it would only be because the diminished cost 
at which a certain degree of luxury could be enjoyed, might induce 
people, in that prospect, to make fresh savings for a lower profit 
than they formerly were wilHng to do. When foreign trade makes 
room for more capital at the same profit, it is by enabhng the 
necessaries of Hfe, or the habitual articles of the labourer's con- 
sumption, to be obtained at smaller cost. It may do this in two 
ways ; by the importation either of those commodities themselves, 
or of the means and appHances for producing them. Cheap iron 
haSj in a certain measure, the same effect on profits and the cost 
of labour as cheap corn, because cheap iron makes cheap tools for 
agriculture and cheap machinery for clothing. But a foreign trade 
which neither directly, nor by any indirect consequence, increases 
the cheapness of anything consumed by the labourers, does not, any 
more than an invention or discovery in the hke case, tend to raise 
profits or retard their fall ; it merely substitutes the production 
of goods for foreign markets in the room^of the home production of 
luxuries, leaving the employment for capital neither greater nor less 
than before. It is true, that there is scarcely any export trade 
which, in a country that abeady imports necessaries or materials, 
comes within these conditions : for every increase of exports enables 
the country to obtain all its imports on cheaper terms than before. 

A country which, as is now the case with England,^ admits 
food of all kinds, and all necessaries and the materials of necessaries, 
to be freely imported from all parts of the world, no longer depends 
on the fertihty of her own soil to keep up her rate of profits, but 
on the soil of the whole world. It remains to consider how far this 
resource can be counted upon, for making head during a very long 
period against the tendency of profits to decline as capital increases. 

It must, of course, be supposed that with the increase of capital, 
population also increases ; for if it did not, the consequent rise of 
wages would bring down profits, in spite of any cheapness of food. 
Suppose then that the population of Great Britain goes on increasing 
at its present rate, and demands every year a supply of imported 
food considerably beyond that of the year preceding. This annual 
increase in the food demanded from the exporting countries can 

1 [So from the 5th ed. (1862). In the 1st ed. (1848) the parenthesis had 
been : " (which is now very nearly, and will soon be entirely, our own case)."] 

2 B 



738 BOOK IV. CHAPTER IV. §,8 

only be obtained either by great improvements in their agriculture, 
or by the application of a great additional capital to the growth 
of food. The former is likely to be a very slow process, from the 
rudeness and ignorance of the agricultural classes in the food- 
exporting countries of Europe, while the British colonies and the 
United States are already in possession of most of the improvements 
yet made, so far as suitable to their circumstances. There remains 
as a resource, the extension of cultivation. And on this it is to be 
remarked, that the capital by which any such extension can take 
place, is mostly still to be created. In Poland, Eussia, Hungary, 
Spain, the increase of capital is extremely slow. In America it 
is rapid, but not more rapid than the population. The principal 
fund at present available for supplying this country with a yearly 
increasing importation of food, is that portion of the annual savings 
of America which has heretofore been apphed to increasing the 
manufacturing estabUshments of the United States, and which 
free trade in corn may possibly divert from that purpose to growing 
food for our market. This Kmited source of supply, unless great 
improvements take place in agriculture, cannot be expected to keep 
pace with the growing demand of so rapidly increasing a population 
as that of Great Britain ; and if our population and capital continue 
to increase with their present rapidity, the only mode in which 
food can continue to be suppKed cheaply to the one, is by sending 
the other abroad to produce it.^ 

§ 8. This brings us to the last of the counter-forces which 
check the downward tendency of profits, in a country whose capital 
increases faster than that of its neighbours and whose profits are 
therefore nearer to the minimum. This is, the perpetual overflow 
of capital into colonies or foreign countries, to seek higher profits 
than can be obtained at home. I beheve this to have been for many 
years one of the principal causes by which the decline of profits 
in England has been arrested. It has a twofold operation. In the 
first place, it does what a fire, or an inundation, or a commercial crisis 
would have done : it carries ofi a part of the increase of capital from 
which the reduction of profits proceeds. Secondly, the capital so 
carried off is not lost, but is chiefly employed either in founding 
colonies, which become large exporters of cheap agricultural produce, 
or in extending and perhaps improving the agriculture of older 

* [See Appendix BB, The Importation of Food.} 



TEJNDEJ^UY Oiy I'KUijTi'S TO A MiJNlMUM 739 

communities. It is to the emigration of Englisli capital, that we 
have chiefly to look for keeping up a supply of cheap food and cheap 
materials of clothing, proportional to the increase of our population ; 
thus enabhng an increasing capital to find employment in the country, 
without reduction of profit, in producing manufactured articles 
with which to pay for this supply of raw produce. Thus, the 
exportation of capital is an agent of great efficacy in extending the 
field of employment for that which remains : and it may be said 
truly that, up to a certain point, the more capital we send away, the 
more we shall possess and be able to retain at home. 

In countries which are further advanced in industry and popu- 
lation, and have therefore a lower rate of profit, than others, there 
is always, long before the actual minimum is 3?eached, a practical 
minimum, viz., when profits have fallen so much below what they 
are elsewhere, that, were they to fall lower, all further accumulations 
would go abroad. In the present state of the industry of the world, 
when there is occasion, in any rich and improving country, to take 
the minimum of profits at aU into consideration for practical 
purposes, it is only this practical minimum that needs be considered. 
As long as there are old countries where capital increases very 
rapidly, and new countries where profit is still high, profits in the 
old countries will not sink to the rate which would put a stop to 
accumulation ; the fall is stopped at the point which sends capital 
abroad. It is only, however, by improvements in production, and 
even in the production of things consumed by labourers, that the 
capital of a country Hke England is prevented from speedily reaching 
that degree of lowness of profit, which would cause all further savings 
to be sent to find employment in the colonies, or in foreign countries.^ 

^ [See Appendix CC. The Tendency of ProfUs to a Minimum.'] 



CHAPTER ? 

CONSEQUENCES OF THE TENDENCY OP PROFITS TO A MINIMUM 

§ 1. The theory of tlie eSect of accumulation on profits, laid 
down in the preceding chapter, materially alters many of the 
practical conclusions which might otherwise be supposed to follow from 
the general principles of Political Economy, and which were, indeed, 
long admitted as true by the highest authorities on the subject. 

It must greatly abate, or rather, altogether destroy, in countries 
where profits are low, the immense importance which used to be 
attached by pohtical economists to the effects which an event or a 
measure of government might have in adding to or subtracting 
from the capital of the country. We have now seen that the low- 
ness of profits is a proof that the spirit of accumulation is so active, 
and that the increase of capital has proceeded at so rapid a rate, as 
to outstrip the two counter-agencies, improvements in production, 
and increased supply of cheap necessaries from abroad : and that 
unless a considerable portion of the annual increase of capital were 
either periodically destroyed, or exported for foreign investment, 
the country would speedily attain the point at which further accu- 
mulation would cease, or at least spontaneously slacken, so as no 
longer to overpass the march of invention in the arts which produce 
the necessaries of life. In such a state of things as this, a sudden 
addition to the capital of the country, unaccompanied by any in- 
crease of productive power, would be but of transitory duration ; 
since, by depressing profits and interest, it would either diminish by 
a corresponding amount the savings which would be made from 
income in the year or two following, or it would cause an equivalent 
amount to be sent abroad, or to be wasted in rash speculations. 
Neither, on the other hand, would a sudden abstraction of capital, 
unless of inordinate amount, have any real efiect in impoverishing 
the country. After a few months or years, there would exist in the 
country just as much capital as if none had been taken away. The 



TENDENCY OF PROFITS TO A MINIMUM 741 

abstraction, by raising profits and interest, would give a fresh 
stimulus to the accumulative principle, which would speedily fill 
up the vacuum. Probably, indeed, the only efiect that would ensue, 
would be that for some time afterwards less capital would be exported, 
and less thrown away in hazardous speculation. 

In the first place, then, this view of things greatly weakens, in a 
wealthy and industrious country, the force of the economical argu- 
ment against the expenditure of public money for really valuable, 
even though industriously unproductive, purposes. If for any 
great object of justice or philanthropic poHcy, such as the industrial 
regeneration of Ireland, or a comprehensive measure of colonization 
or of pubHc education, it were proposed to raise a large sum by 
way of loan, poUticians need not demur to the abstraction of so 
much capital, as tending to dry up the permanent sources of the 
country's wealth, and diminish the fund which supplies the sub- 
sistence of the labouring population. The utmost expense which 
could be requisite for any of these purposes, would not in all prob- 
ability deprive one labourer of employment, or diminish the next 
year's production by one ell of cloth or one bushel of grain. In 
poor countries, the capital of the country requires the legislator's 
sedulous care ; he is bound to be most cautious of encroaching 
upon it, and should favour to the utmost its accumulation at home, 
and its introduction from abroad. But in rich, populous, and 
highly cultivated countries, it is not capital which is the deficient 
element, but fertile land ; and what the legislator should desire 
and promote, is not a greater aggregate saving, but a greater return 
to savings, either by improved cultivation, or by access to the 
produce of more fertile lands in other parts of the globe. In such 
countries, the government may take any moderate portion of the 
capital of the country and expend it as revenue, without affecting 
the national wealth : the whole being either drawn from that portion 
of the annual savings which would otherwise be sent abroad, or 
being subtracted from the unproductive expenditure of individuals 
for the next year or two, since every million spent makes room for 
another million to be saved before reaching the overflowing point. 
When the object in view is worth the sacrifice of such an amount of 
the expenditure that furnishes the daily enjoyments of the people, 
the only well-grounded economical objection against taking the 
necessary funds directly from capital, consists of the inconveniences 
attending the process of raising a revenue by taxation, to pay the 
interest of a debt. 



742 BOOK IV. CHAPTER V. § 2 

The same considerations enable us to throw aside as unworthy 
of regard, one of the common arguments against emigration as a 
means of relief for the labouring class. Emigration, it is said, can 
do no good to the labourers, if, in order to defray the cost, as much 
must be taken away from the capital of the country as from its 
population. That anything like this proportion could require to be 
abstracted from capital for the purpose even of the most extensive 
colonization, few, I should think, would now assert : but even on 
that untenable supposition, it is an error to suppose that no benefit 
would be conferred on the labouring class. If one-tenth of the 
labouring people of England were transferred to the colonies, and 
along with them one-tenth of the circulating capital of the country, 
either wages, or profits, or both, would be greatly benefited by the 
diminished pressure of capital and population upon the fertility of 
the land. There would be a reduced demand for food : the inferior 
arable lands would be thrown out of cultivation, and would become 
pasture ; the superior would be cultivated less highly, but with a 
greater proportional return ; food would be lowered in price, and 
though money wages would not rise, every labourer would be con- 
siderably improved in circumstances, an improvement which, if no 
increased stimulus to population and fall of wages ensued, would be 
permanent ; while if there did, profits would rise, and accumulation 
start forward so as to repair the loss of capital. The landlords alone 
would sustain scime loss of income ; and even they, only if coloniza- 
tion went to the length of actually diminishing capital and popula- 
tion, but not if it merely carried off the annual increase. 

§ 2. From the same principles we are now able to arrive at a 
final conclusion respecting the effects which machinery, and gener- 
ally the sinking of capital for a productive purpose, produce upon 
the immediate and ultimate interests of the labouring class. The 
characteristic property of this class of industrial improvements is 
the conversion of circulating capital into fixed : and it was shown 
in the first Book,* that in a country where capital accumulates 
slowly, the introduction of machinery, permanent improvements 
of land, and the Hke, might be, for the time, extremely injurious ; 
since the capital so employed might be directly taken from the 
wages fund, the subsistence of the people and the employment for 
labour curtailed, and the gross annual produce of the country actually 
diminished. But in a country of great annual savings and low 

* Supra, p. 94. 



TENDENCY OP PROFITS TO A MINIMUM 745 

profits, no such, effects need be apprehended. Since even the 
emigration of capital, or its unproductive expenditure, or its absolute 
waste, do not in such a country, if confined within any moderate 
bounds, at all diminish the aggregate amount of the wages fund — 
still less can the mere conversion of a like sum into fixed capital, 
which continues to be productive, have that effect. It merely 
draws off at one orifice what was already flowing out at another ; 
or if not, the greater vacant space left in the reservoir does but cause 
a greater quantity to flow in. Accordingly, in spite of the mis- 
chievous derangements of the money-market which were at one 
time occasioned by the sinking of great sums in railways, I was 
never able to agree with those who apprehended mischief, from 
this source, to the productive resources of the coimtry.i Not on the 
absurd ground (which to any one acquainted with the elements of 
the subject needs no confutation) that railway expenditure is a 
mere transfer of capital from hand to hand, by which nothing is lost 
or destroyed. This is true of what is spent in the purchase of the 
land ; a portion too of what is paid to parliamentary agents, counsel, 
engineers, and surveyors is saved by those who receive it, and 
becomes capital again : but what is laid out in the bond fide con- 
struction of the railway itself is lost and gone ; when once expended, 
it is incapable of ever being paid in wages or applied to the mainte- 
nance of labourers again ; as a matter of account, the result is that 
so much food and clothing and tools have been consumed, and the 
country has got a railway instead. But what I would urge is, that 
sums so applied are mostly a mere appropriation of the annual over- 
flowing which would otherwise have gone abroad, or been thrown 
away unprofitably, leaving neither a railway nor any other tangible 
result. The railway gambling of 1844 and 1845 probably saved the 
country from a depression of profits and interest, and a rise of all 
public and private securities, which would have engendered still 
wilder speculations, and when the effects came afterwards to be 
complicated by the scarcity of food, would have ended in a still 
more formidable crisis than was experienced in the years immediately 
following. In the poorer countries of Europe, the rage for railway 
construction might have had worse consequences than in England, 
were it not that in those countries such enterprises are in a great 
measure carried on by foreign capital. The railway operations of 

* [The present form of this sentence dates from the 6th ed. (1865). The 
original [1848] text ran : " the great sums in process of being sunk," and " I 
cannot agree."] 



744 BOOK IV. CHAPTER V. § 2 

the various nations of the world may be looked upon as a sort of 
competition for the overflowing capital of the countries where 
profit is low and capital abundant, as England and Holland. The 
English railway speculations are a struggle to keep our annual 
increase of capital at home ; those of foreign countries are an effort 
to obtain it.* 

It already appears from these considerations, that the conver- 
sion of circulating capital into fixed, whether by railways, or manu- 
factories, or ships, or machinery, or canals, or mines, or works of 
drainage and irrigation, is not likely, in any rich country, to diminish 
the gross produce or the amount of employment for labour. How 
much then is the case strengthened, when we consider that these 
transformations of capital are of the nature of improvements in 
production, which, instead of ultimately diminishing circulating 
capital, are the necessary conditions of its increase, since they alone 
enable a country to possess a constantly augmenting capital without 
reducing profits to the rate which would cause accumulation to 
stop. There is hardly any increase of fixed capital which does not 
enable the country to contain eventually a larger circulating capital 
than it otherwise could possess and employ within its own limits ; 
for there is hardly any creation of fixed capital which, when it 
proves successful, does not cheapen the articles on which wages 
are habitually expended. All capital sunk in the permanent im- 
provement of land lessens the cost of food and materials ; almost 
all improvements in machinery cheapen the labourer's clothing or 
lodging, or the tools with which these are made ; improvements in 
locomotion, such as railways, cheapen to the consumer all things 
which are brought from a distance. All these improvements make 
the labourers better off with the same money wages, better off if 
they do not increase their rate of multiplication. But if they do, 
and wages consequently fall, at least profits rise, and, while accumula- 
tion receives an immediate stimulus, room is made for a greater 
amount of capital before a sufficient motive arises for sending it 
abroad. Even the improvements which do not cheapen the things 
consumed by the labourer, and which, therefore, do not raise profits 
nor retain capital in the country, nevertheless, as we have seen, by 
lowering the minimum of profit for which people will ultimately 

* [1852] It is hardly needful to point out how fully the remarks in the 
text have been verified by subsequent facts. The capital of the country, far 
from having been in any degree impaired by the large amount sunk in railway 
ponstruction, was soon again overflowing. 



TENDENCY OF PROFITS TO A MINIMUM 746 

consent to save, leave an ampler margin tlian preAdously for eventual 
accumulation, before arriving at the stationary state. 

We may conclude, then, that improvements in production, and 
emigration of capital to the more fertile soils and unworked mines 
of the uninhabited or thinly peopled parts of the globe, do not, as 
appears to a superficial view, diminish the gross produce and the 
demand for labour at home ; but, on the contrary, are what we have 
chiefly to depend on for increasing both, and are even the necessary 
conditions of any great or prolonged augmentation of either. Nor 
is it any exaggeration to say, that within certain, and not very 
narrow, limits, the more capital a country like England expends in 
these two ways, the more she will have left. 



CHAPTER VI 

OP THE STATIONARY STATE 

§ 1. The preceding chapters comprise tlie general theory c£ 
the economical progress of society, in the sense in which those terms 
are commonly understood ; the progress of capital, of population, 
and of the productive arts. But in contemplating any progressive 
movement, not in its nature unlimited, the mind is not satisfied with 
merely tracing the laws of the movement ; it cannot but ask the 
further question, to what goal ? Towards what ultimate point is 
society tending by its industrial progress ? When the progress 
ceases, in what condition are we to expect that it will leave 
mankind ? 

It must always have been seen, more or less distinctly, by 
political economists, that the increase of wealth is not boundless : 
that at the end of what they term the progressive state lies the 
stationary state, that all progress in wealth is but a postponement 
of this, and that each step in advance is an approach to it. We 
have now been led to recognise that this ultimate goal is at all 
times near enough to be fully in view ; that we are always on the 
verge of it, and that if we have not reached it long ago, it is because 
the goal itself flies before us. The richest and most prosperous 
countries would very soon attain the stationary state, if no further 
improvements were made in the productive arts, and if there were 
a suspension of the overflow of capital from those countries into the 
uncultivated or ill-cultivated regions of the earth. 

This impossibility of ultimately avoiding the stationary state — 
this irresistible necessity that the stream of human industry should 
finally spread itself out into an apparently stagnant sea — must have 
been, to the political economists of the last two generations, an 
unpleasing and discouraging prospect ; for the tone and tendency 
of their speculations goes completely to identify all that is economi- 
cally desirable with the progressive state, and with that alone. 



THE STATIONARY STATE 747 

With Mr. M'Culloch, for example, prosperity does not mean a large 
production and a good distribution of wealth, but a rapid increase of 
it ; his test of prosperity is high profits ; and as the tendency of 
that very increase of wealth, which he calls prosperity, is towards 
low profits, economical progress, according to him, must tend to the 
extinction of prosperity. Adam Smith always assumes that the 
condition of the mass of the people, though it may not be positively 
distressed, must be pinched and stinted in a stationary condition 
of wealth, and can only be satisfactory in a progressive state. The 
doctrine that, to however distant a time incessant strugghng may put 
oS our doom, the progress of society must " end in shallows and 
in miseries," far from being, as many people still beUeve, a wicked 
invention of Mr. Malthus, was either expressly or tacitly affirmed 
by his most distinguished predecessors, and can only be successfully 
combated on his principles. Before attention had been directed to 
the principle of population as the active force in determining the 
remuneration of labour, the increase of mankind was virtually treated 
as a constant quantity ; it was, at all events, assumed that in the 
natural and normal state of human aSairs population must constantly 
increase, from which it followed that a constant increase of the means 
of support was essential to the physical comfort of the mass of man- 
kind. The publication of Mr. Malthus' Essay is the era from which 
better views of this subject must be dated ; and notwithstanding 
the acknowledged errors of his first edition, few writers have done 
more than himself, in the subsequent editions, to promote these 
juster and more hopeful anticipations. 

Even in a progressive state of capital, in old countries, a con- 
scientious or prudential restraint on population is indispensable, 
to prevent the increase of numbers from outstripping the increase of 
capital, and the condition of the classes who are at the bottom of 
society from being deteriorated. Where there is not, in the people, 
or in some very large proportion of them, a resolute resistance to 
this deterioration — a determination to preserve an estabHshed 
standard of comfort — the condition of the poorest class sinks, 
even in a progressive state, to the lowest point which they will 
consent to endure. The same determination would be equally 
efiectual to keep up their condition in the stationary state, and 
would be quite as hkely to exist. Indeed, even now, the countries 
in which the greatest prudence is manifested in the regulating of 
popidation are often those in which capital increases least rapidly. 
Where there is an indefinite prospect of employment for increased 



748 BOOK IV. CHAPTER VI. § 2 

numbers, there is apt to appear less necessity for prudential restraint. 
If it were evident that a new hand could not obtain employment but 
by displacing, or succeeding to, one already employed, the combined 
influences of prudence and public opinion might in some measure be 
relied on for restricting the coming generation within the numbers 
necessary for replacing the present. 

§ 2. I cannot, therefore, regard the stationary state of capital 
and wealth with the unaffected aversion so generally manifested 
towards it by political economists of the old school. I am incUned 
to believe that it would be, on the whole, a very considerable im- 
provement on our present condition. I confess I am not charmed 
with the ideal of life held out by those who think that the normal state 
of human beings is that of struggling to get on ; that the trampUng, 
crushing, elbowing, and treading on each other's heels, which form the 
existing type of social life, are the most desirable lot of human kind, 
or anything but the disagreeable symptoms of one of the phases of 
industrial progress. It may be a necessary stage in the progress of 
civiHzation, and those European nations which have hitherto been 
so fortunate as to be preserved from it, may have it yet to undergo. 
It is an incident of growth, not a mark of decline, for it is not 
necessarily destructive of the higher aspirations and the heroic 
virtues ; as America, in her great civil war, has proved to the world, 
both by her conduct as a people and by numerous splendid individual 
examples, and as England, it is to be hoped, would also prove, on an 
equally trying and exciting occasion.^ But it is not a kind of social 
perfection which philanthropists to come will feel any very eager 
desire to assist in realizing. Most fitting, indeed, is it, that while 
riches are power, and to grow as rich as possible the universal object 
of ambition, the path to its attainment should be open to all, without 
favour or partiality. But the best state for human nature is that 

^ [This and the preceding sentence replaced in the 6th ed. (1865) the following 
passage of the original [1848] text : " The northern and middle states of 
America are a specimen of this stage of civilization in very favourable circum- 
stances ; having, apparently, got rid of all social injustices and inequalities 
that affect persons of Caucasian race and of the male sex, while the proportion 
of population to capital and land is such as to ensure abundance to every 
able-bodied member of the community who does not forfeit it by misconduct. 
They have the six points of Chartism, and they have no poverty : and all that 
these advantages seem to have done for them is that the life of the whole of 
one sex is devoted to dollar-hunting, and of the other to breeding dollar- 
hunters." Into this, however, had been inserted since the 2nd ed. (1849), after 
" done for them," the parenthesis " (notwithstanding some incipient signs of 
a better tendency)."^ 



THE STATIONARY STATE 749 

in whicli, while no one is poor, no one desires to be riclier, nor has 
any reason to fear being thrust back by the efforts of others to 
push themselves forward. 

That the energies of mankind should be kept in employment by 
the struggle for riches, as they were formerly by the struggle of war, 
until the better minds succeed in educating the others into better 
things, is undoubtedly more desirable than that they should rust 
and stagnate. While minds are coarse they require coarse stimuli, 
and let them have them. In the mean time, those who do not accept 
the present very early stage of human improvement as its ultimate 
type, may be excused for being comparatively indifferent to the 
kind of economical progress which excites the congratulations of 
ordinary politicians ; the mere increase of production and accumu- 
lation. For the safety of national independence it is essential that 
a country should not fall much behind its neighbours in these things. 
But in themselves they are of little importance, so long as either the 
increase of population or anything else prevents the mass of the 
people from reaping any part of the benefit of them. I know not 
why it should be matter of congratulation that persons who are 
already richer than any one needs to be, should have doubled their 
means of consuming things which give little or no pleasure except 
as representative of wealth ; or that numbers of individuals should 
pass over, every year, from the middle classes into a richer class, or 
from the class of the occupied rich to that of the unoccupied. It is 
only in the backward countries of the world that increased production 
is still an important object : in those most advanced, what is econo- 
mically needed is a better distribution, of which one indispensable 
means is a stricter restraint on population. LeveUing institutions, 
either of a just or of an unjust kind, cannot alone accomplish it ; 
they may lower the heights of society, but they cannot, of themselves, 
permanently ^ raise the depths. 

On the other hand, we may suppose this better distribution of 
property attained, by the joint effect of the prudence and frugahty 
of individuals, and of a system of legislation favouring equality of 
fortunes, so far as is consistent with the just claim of the individual to 
the fruits, whether great or small, of his or her own industry. We 
may suppose, for instance (according to the suggestion thrown out 
in a former chapter *), a Hmitation of the sum which any one person 

1 [" Permanently " inserted in 2nd ed. (1849) ; " of themselves " in 3rd 
(1852).] 

* Supra, pp. 227-9. 



750 , BOOK IV. CHAPTER VI. § 2 

may acquire by gift or inheritance to the amount sufficient to 
constitute a moderate independence. Under this twofold influence 
society would exhibit these leading features : a well-paid and affluent 
body of labourers ; no enormous fortunes, except what were earned 
and accumulated during a single lifetime ; but a much larger body 
of persons than at present, not only exempt from the coarser toils, but 
with sufficient leisure, both physical and mental, from mechanical 
details, to cultivate freely the graces of hfe, and afford examples of 
them to the classes less favourably circumstanced for their growth. 
This condition of society, so greatly preferable to the present, is 
not only perfectly compatible with the stationary state, but, it 
would seem, more naturally allied with that state than with any 
other. 

There is room in the world, no doubt, and even in old countries, 
for a great increase of population, supposing the arts of hfe to go 
on improving, and capital to increase. But even if innocuous, I 
confess I see very Uttle reason for desiring it. The density of 
population necessary to enable mankind to obtain, in the greatest 
degree, all the advantages both of co-operation and of social 
intercourse, has, in all the most populous countries, been attained. 
A population may be too crowded, though all be amply suppHed 
with food and raiment. It is not good for man to be kept perforce 
at all times in the presence of his species. A world from which 
BoKtude is extirpated is a very poor ideal. SoHtude, in the sense 
of being often alone, is essential to any depth of meditation or of 
character ; and solitude in the presence of natural beauty and 
grandeur, is the cradle of thoughts and aspirations which are not 
only good for the individual, but which society could ill do without. 
Nor is there much satisfaction in contemplating the world with 
nothing left to the spontaneous activity of nature ; with every rood 
of land brought into cultivation, which is capable of growing food 
for human beings ; every flowery waste or natural pasture ploughed 
up, all quadrupeds or birds which are not domesticated for man's 
use exterminated as his rivals for food, every hedgerow or superfluous 
tree rooted out, and scarcely a place left where a wild shrub or 
flower could grow without being eradicated as a weed in the name 
of improved agriculture. If the earth must lose that great portion 
of its pleasantness which it owes to things that the unHmited increase 
of wealth and population would extirpate from it, for the mere 
purpose of enabhng it to support a larger, but not a better or a 
happier population, I sincerely hope,, for the sake of posterity, that 



THE STATIONARY STATE 751 

they will be content to be stationary, long before necessity compels 
them to it. 

It is scarcely necessary to remark that a stationary condition of 
capital and population implies no stationary state of human im- 
provement. There would be as much scope as ever for all kinds of 
mental culture, and moral and social progress ; as much room for 
improving the Art of Living, and much more Hkehhood of its being 
improved, when minds ceased to be engrossed by the art of getting on. 
Even the industrial arts might be as earnestly and as successfully 
cultivated, with this sole difference, that instead of serving no 
purpose but the increase of wealth, industrial improvements would 
produce their legitimate effect, that of abridging labour. Hitherto 
[1848] it is questionable if all the mechanical inventions yet made 
have lightened the day's toil of any human being. They have 
enabled a greater population to hve the same Ufe of drudgery and 
imprisonment, and an increased number of manufacturers and 
others to make fortunes. They have increased the comforts of the 
middle classes. But they have not yet begun to effect those great 
changes in human destiny, which it is in their nature and in their 
futurity to accomplish. Only when, in addition to just institutions, 
the increase of mankind shall be under the dehberate guidance of 
judicious foresight, can the conquests made from the powers of 
nature by the intellect and energy of scientific discoverers become 
the common property of the species, and the means of improving 
and elevating the universal lot. 



CHAPTER VII 

ON THE PROBABLE FUTURITY OP THE LABOURING CLASSES 

§ 1. The observations in the preceding chapter had for their 
principal object to deprecate a false ideal of human society. Their 
appHcabihty to the practical purposes of present times consists in 
moderating the inordinate importance attached to the mere increase 
of production, and fixing attention upon improved distribution, and 
a large remuneration of labour, as the two desiderata. Whether 
the aggregate produce increases absolutely or not, is a thing in which, 
after a certain amount has been obtained, neither the legislator nor 
the philanthropist need feel any strong interest : but, that it should 
increase relatively to the number of those who share in it, is of 
the utmost possible importance ; and this, (whether the wealth of 
mankind be stationary, or increasing at the most rapid rate ever 
known in an old country,) must depend on the opinions and habits of 
the most numerous class, the class of manual labourers. 

1 When I speak, either in this place or elsewhere, of *' the labouring 
classes," or of labourers as a " class," I use those phrases in com- 
pliance with custom, and as descriptive of an existing, but by no 
means a necessary or permanent, state of social relations. I do not 
recognise as either just or salutary, a state of society in which there 
is any " class " which is not labouring ; any human beings, exempt 

^ [This paragraph replaced in the 3rd ed. (1852) the following paragraph 
of the original (1848) text : 

" The economic condition of that class, and along with it of all society, 
depends therefore essentially on its moral and intellectual, and that again 
on its social, condition. In the details of political economy, general views 
of society and politics are out of place ; but in the more comprehensive 
inquiries it is impossible to exclude them ; since the various leading depart- 
ments of human life do not develop themselves separately, but each depends 
on all, or is profoundly modified by them. To obtain any light on the great 
economic question of the future, which gives the chief interest to the phenomena 
of the present — the physical condition of the labouring classes — we must 
consider it, not separately, but in conjunction with all other points of their 
condition."] 



PKOBABLE FUTURE OF THE LABOttRING CLASSES 753 

from bearing their share of the necessary labours of human life, 
except those unable to labour, or who have fairly earned rest by 
previous toil. So long, however, as the great social evil exists of a 
non-labouring class, labourers also constitute a class, and may be 
spoken of, though only provisionally, in that character. 

Considered in its moral and social aspect, the state of the labour- 
ing people has latterly been a subject of much more speculation and 
discussion than formerly ; and the opinion that it is not now what 
it ought to be, has become very general. The suggestions which 
have been promulgated, and the controversies which have been 
excited, on detached points rather than on the foundations of the 
subject, have put in evidence the existence of two conflicting 
theories, respecting the social position desirable for manual labourers. 
The one may be called the theory of dependence and protection, 
the other that of self-dependence. 

According to the former theory, the lot of the poor, in all things 
which affect them collectively, should be regulated for them, not 
hy them. They should not be required or encouraged to think for 
themselves, or give to their own reflection or forecast an influential 
voice in the determination of their destiny. It is supposed to be 
the duty of the higher classes to think for them, and to take the 
responsibility of their lot, as the commander and officers of an army 
take that of the soldiers composing it. This function, it is contended, 
the higher classes should prepare themselves to perform con- 
scientiously, and their whole demeanour should impress the poor 
with a reliance on it, in order that, while yielding passive and active 
obedience to the rules prescribed for them, they may resign them- 
selves in all other respects to a trustful insouciance, and repose under 
the shadow of their protectors. The relation between rich and 
poor, according to this theory (a theory also applied to the relation 
between men and women) ^ should be only partly authoritative ; 
it should be amiable, moral, and sentimental : aflectionate tutelage 
on the one side, respectful and grateful deference on the other. 
The rich should be in loco 'parentis to the poor, guiding and restraining 
them like children. Of spontaneous action on their part there 
should be no need. They should be called on for nothing but to 
do their day's work, and to be moral and religious. Their morahty 
and religion should be provided for them by their superiors, who 
should see them properly taught it, and should do all that is necessary 

* [Parenthesis inserted in 3rd ed. (1852).] 



754 BOOK IV. CHAPTER VII. § 1 

to ensure their being, in return for labour and attachment, properly 
fed, clothed, housed, spiritually edified, and innocently amused. 

This is the ideal of the future, in the minds of those whose dis- 
satisfaction with the Present assumes the form of affection and 
regret towards the Past.^ Like other ideals, it exercises an uncon- 
scious influence on the opinions and sentiments of numbers who 
never consciously guide themselves by any ideal. It has also this 
in common with other ideals, that it has never been historically 
realised. It makes its appeal to our imaginative sympathies in 
the character of a restoration of the good times of our forefathers. 
But no times can be pointed out in which the higher classes of this 
or any other country performed a part even distantly resembling 
the one assigned to them in this theory. It is an idealization, 
grounded on the conduct and character of here and there an indi- 
vidual. All privileged and powerful classes, as such, have used 
their power in the interest of their own selfishness, and have indulged 
their self-importance in despising, and not in lovingly caring for, 
those who were, in their estimation, degraded, by being under the 
necessity of working for their benefit. I do not affirm that what 
has always been must always be, or that human improvement has 
no tendency to correct the intensely selfish feelings engendered by 
power ; but though the evil may be lessened, it cannot be eradicated, 
until the power itself is withdrawn. This, at least, seems to me 
undeniable, that long before the superior classes could be sufficiently 
improved to govern in the tutelary manner supposed, the inferior 
classes would be too much improved to be so governed. 

I am quite sensible of all that is seductive in the picture of 
society which this theory presents. Though the facts of it have 
no prototype in the past, the feelings have. In them lies all that 
there is of reality in the conception. As the idea is essentially 
repulsive of a society only held together by the relations and feelings 
arising out of pecuniary interests, so there is something naturally 
attractive in a form of society abounding in strong personal attach- 
ments and disinterested self-devotion. Of such feelings it must be 
admitted that the relation of protector and protected has hitherto 
been the richest source. The strongest attachments of human 
beings in general, are towards the things or the persons that stand 
between them and some dreaded evil. Hence, in an age of lawless 
violence and insecurity, and general hardness and roughness of 

^ [Carlyle's Past and Present appeared in 1843.] 



PROBABLE FUTURE OF THE LABOURING CLASSES 755 

manners, in which life is beset with dangers and sufferings at every 
step, to those who have neither a commanding position of their own, 
nor a claim on the protection of some one who has — a generous 
giving of protection, and a grateful receiving of it, are the strongest 
ties which connect human beings ; the feelings arising from that 
relation are their warmest feelings ; all the enthusiasm and tender- 
ness of the most sensitive natures gather round it ; loyalty on the 
one part and chivalry on the other are principles exalted into passions. 
I do not desire to depreciate these qualities.^ The error lies in 
not perceiving, that these virtues and sentiments, like the clanship 
and the hospitality of the wandering Arab, belong emphatically 
to a rude and imperfect state of the social union ; and that the 
feelings between protector and protected, whether between kings 
and subjects, rich and poor, or men and women,^ can no longer 
have this beautiful and endearing character where there are no 
longer any serious dangers from which to protect. What is there 
in the present state of society to make it natural that human beings, 
of ordinary strength and courage, should glow with the warmest 
gratitude and devotion in return for protection ? The laws protect 
them, wherever the laws do not criminally fail in their duty.^ To 
be under the power of some one, instead of being as formerly the 
sole condition of safety, is now, speaking generally, the only situation 
which exposes to grievous wrong. The so-called protectors are now 
the only persons against whom, in any ordinary circumstances, 
protection is needed. The brutality and tyranny with which every 
police report is filled, are those of husbands to wives, of parents 
to children. That the law does not prevent these atrocities, that 
it is only now making a first timid attempt to repress and punish 
them, is no matter of necessity, but the deep disgrace of those by 
whom the laws are made and administered. No n^an or woman 
who either possesses or is able to earn an independent livelihood, 

1 [In the 3rd ed. (1852) " qualities " replaced " virtues," and the next 
sentence was omitted : " That the most beautiful developments of feeling and 
character often grow out of the most painful, and in many respects the most 
hardening and corrupting, circumstances of our condition, is now, and probably 
will long be, one of the chief stumbhng-blocks both in the theory and in the 
practice of morals and education,"] 

2 [" Whether . . . women " inserted in 3rd ed.] 

^ [So since the 3rd ed. The original text ran : " The laws protect them : 
where laws do not reach, manners and opinion shield them." The reference to 
poHce reports and atrocities later in the paragraph was introduced in the 3rd 
ed., and " the protection of the law " was expanded into the protection which 
the law " ought to give."] 



756 BOOK IV. CHAPTER VII. § 1 

requires any other protection than that which the law could and 
ought to give. This being the case, it argues great ignorance of 
human nature to continue taking for granted that relations founded 
on protection must always subsist, and not to see that the assump- 
tion of the part of protector, and of the power which belongs 
to it, without any of the necessities which justify it, must engender 
feelings opposite to loyalty. 

Of the working men, at least in the more advanced countries 
of Europe, it may be pronounced certain, that the patriarchal or 
paternal system of government is one to which they will not again 
be subject. That question was decided, when they were taught to 
read, and allowed access to newspapers and political tracts ; when 
dissenting preachers were suffered to go among them, and appeal 
to their faculties and feelings in opposition to the creeds professed 
and countenanced by their superiors ; when they were brought 
together in numbers, to work socially under the same roof ; when 
railways enabled them to shift from place to place, and change 
their patrons and employers as easily as their coats ; when they were 
encouraged to seek a share in the government, by means of the 
electoral franchise.^ The working classes have taken their interests 
into their own hands, and are perpetually showing that they think 
the interests of their employers not identical with their own, but 
opposite to them. Some among the higher classes flatter themselves 
that these tendencies may be counteracted by moral and religious 
education : but they have let the time go by for giving an education 
which can serve their purpose. The principles of the Eeformation 
have reached as low down in society as reading and writing, and 
the poor will not much longer accept morals and religion of other 
people's prescribing. I speak more particularly of this country, 
especially the town population, and the districts of the most scientific 
agriculture or the highest wages, Scotland and the north of England. 
Among the more inert and less modernized agricultural population 
of the southern counties, it might be possible for the gentry to retain, 
for some time longer, something of the ancient deference and sub- 
mission of the poor, by bribing them with high wages and constant 
employment ; by insuring them support, and never requiring them 
to do anything which they do not like. But these are two conditions 
which never have been combined, and never can be, for long together. 
A guarantee of subsistence can only be practically kept up, when 

^ [The last clause inserted in 3rd ed, (1852).] 



PROBABLE FUTURE OF THE LABOURING CLASSES 757 

work is enforced and superfluous multiplication restrained by at 
least a moral compulsion. It is then, that the would-be revivers 
of old times which they do not understand, would feel practically 
in how hopeless a task they were engaged. The whole fabric of 
patriarchal or seignorial influence, attempted to be raised on the 
foundation of caressing the poor, would be shattered against the 
necessity of enforcing a stringent Poor-law. 

§ 2. It is on a far other basis that the well-being and well- 
doing of the labouring people must henceforth rest. The poor have 
come out of leading-strings, and cannot any longer be governed or 
treated like children. To their own qualities must now be com- 
mended the care of their destiny. Modern nations will have to 
learn the lesson, that the well-being of a people must exist by means 
of the justice and self-government, the BLKacoavvr) and (7(0(j)pocnjp7}, 
of the individual citizens. The theory of dependence attempts to 
dispense with the necessity of these qualities in the dependent 
classes. But now, when even in position they are becoming less 
and less dependent, and their minds less and less acquiescent in 
the degree of dependence which remains, the virtues of independence 
are those which they stand in need of. Whatever advice, exhortation, 
or guidance is held out to the labouring classes, must henceforth 
be tendered to them as equals, and accepted by them with their 
eyes open. The prospect of the future depends on the degree in 
which they can be made rational beings. 

There is no reason to beheve that prospect other than hopeful. 
The progress indeed has hitherto been, and still is, slow. But there 
is a spontaneous education going on in the minds of the multitude, 
which may be greatly accelerated and improved by artificial aids.' 
The instruction obtained from newspapers and political tracts may 
not be the most soKd kind of instruction, but it is an immense 
improvement upon none at all. i What it does for a people has 
been admirably exemplified during the cotton crisis, in the case of 
the Lancashire spinners and weavers, who have acted with the 
consistent good sense and forbearance so justly applauded, simply 
because, being readers of newspapers, they understood the causes of 
the calamity which had befallen them, and knew that it was in no 
way imputable either to their employers or to the Government. 
It is not certain that their conduct would have been as rational and 

* [This and the following sentence were inserted in the 6th ed. (1865).] 



758 BOOK IV. CHAPTER VII. § 2 

exemplary, if the distress had preceded the salutary measure of 
fiscal emancipation which gave existence to the penny press. The 
institutions for lectures and discussion, the collective deliberations 
on questions of common interest, the trade unions, the political 
agitation, all serve to awaken public spirit, to difiuse variety of 
ideas among the mass, and to excite thought and reflection in the 
more intelligent. Although the too early attainment of political 
franchises by. the least educated class might retard, instead of 
promoting, their improvement, there can be little doubt that it has 
been greatly stimulated by the attempt to acquire them.^ In the 
meantime, the working classes are now part of the public ; in all 
discussions on matters of general interest they, or a portion of them, 
are now partakers ; all who use the press as an instrument may, if it 
so happens, have them for an audience ; the avenues of instruction 
through which the middle classes acquire such ideas as they have, 
are accessible to, at least, the operatives in the towns. With these 
resources, it cannot be doubted that they will increase in intelligence, 
even by their own unaided efforts ; while there is reason to hope 
that great improvements both in the quahty and quantity of school 
education will be effected by the exertions either of government or 
of individuals, and that the progress of the mass of the people in 
mental cultivation, and in the virtues which are dependent on it, 
will take place more rapidly, and with fewer intermittences and 
aberrations, than if left to itself. 

From this increase of intelligence, several effects may be con- 
fidently anticipated. First : that they will become even less 
willing than at present to be led and governed, and directed into 
the way they should go, by the mere authority and 'prestige of 
superiors. If they have not now, still less will they have hereafter, 
any deferential awe, or reHgious principle of obedience, holding 
them in mental subjection to a class above them. The theory of 
dependence and protection will be more and more intolerable to 
them, and they will require that their conduct and condition shall 
be essentially self-governed. It is, at the same time, quite possible 

* [Here was omitted from the 2nd ed. (1849) the following passage of the 
1st (1848) : " It is of little importance that some of them may, at a certain 
stage of their progress, adopt mistaken opinions. Communists are already 
numerous, and are likely to increase in number ; but nothing tends more to 
the mental development of the working classes than that all the questions 
which Communism raises should be largely and freely discussed by them ; 
nothing could be more instructive than that some should actually form com- 
munities, and try practically what it is to live without the institution of 
property."] 



PROBABLE FUTURE OF THE LABOURING CLASSES 759 

that they may demand, in many cases, the intervention of the 
legislature in their affairs, and the regulation by law of various things 
which concern them, often under very mistaken ideas of their 
interest. Still, it is their own will, their own ideas and suggestions, 
to which they will demand that effect should be given, and not rules 
laid down for them by other people. It is quite consistent with 
this, that they should feel respect for superiority of intellect and 
knowledge, and defer much to the opinions, on any subject, of those 
whom they think well acquainted with it. Such deference is 
deeply grounded in human nature ; but they will judge for them- 
selves of the persons who are and are not entitled to it. 

§ 3. It appears to me impossible but that the increase of intelli- 
gence, of education, and of the love of independence among the 
working classes, must be attended with the corresponding growth 
of the good sense which manifests itself in provident habits of 
conduct, and that population, therefore, will bear a gradually 
diminishing ratio to capital and employment. This most desirable 
result would be much accelerated by another change, which lies 
in the direct line of the best tendencies of the .time ; the opening 
of industrial occupations freely to both sexes. The same reasons 
which make it no longer necessary that the poor should depend on 
the rich, make it equally unnecessary that women should depend 
on men ; and the least which justice requires is that law and custom 
should not enforce dependence (when the correlative protection 
has become superfluous) by ordaining that a woman, who does not 
happen to have a provision by inheritance, shall have scarcely any 
means open to her of gaining a livelihood, except as a wife and 
mother. Let women who prefer that occupation, adopt it ; but 
that there should be no option, no other carriere possible for the 
great majority of women, except in the humbler departments of 
life, is a flagrant social injustice.^ The ideas and institutions by 

^ [The original (1848) text ran : " that there should be no other carriire 
possible ... is one of those social injustices which call loudest for remedy. 
Among the salutary consequences of correcting it, one of the most probable 
would be a great diminution," &o. 

In the 2nd ed. (1849) the following sentence was inserted after " remedy " : 
" The ramifications of this subject are far too numerous and intricate to be 
pursued here. The social and poUtical equahty of the sexes is not a question 
of economical detail, but one of principle, so intimately connected with all 
the more vital points of human improvement, that none of them can be 
thoroughly discussed independently of it. But for this very reason it cannot 
be disposed of by way of parenthesis, in a treatise devoted to other subjects. 



760 BOOK IV. CHAPTER VII. § 4 

which the accident of sex is made the groundwork of an inequality 
of legal rights, and a forced dissimilarity of social functions, must 
ere long be recognised as the greatest hindrance to moral, social, and 
even intellectual improvement. On the present occasion I shall 
only indicate, among the probable consequences of the industrial and 
social independence of women, a great diminution of the evil of 
Gver-popiilation It is by devoting one-half of the human species 
to that exclnsive function, by making it fill the entire life of one 
seXp and interweave itself with almost all the objects of the other, 
that the ammal instinct in question is nursed into the dispropor- 
tionate preponderance wMcb. it has hitherto exercised in human 
Ufe. 

§ 4. The political consequences of the increasing power and 
importance of the operative classes, and of the growing ascendancy 
of numbers, which, even in England and under the present institu- 
tions, is rapidly giving to the will of the majority at least a negative 
voice in the acts of government, are too wide a subject to be discussed 
in this place. But, confining ourselves to economical considerations, 
and notwithstanding the effect which improved intelligence in the 
working classes, together with just laws, may have in altering the 
distribution of the produce to their advantage, I cannot think that 
they will be permanently contented with the condition of labouring 
for wages as their ultimate state.^ They may be willing to pass 

It is sufficient for the immediate purpose, to point out, among the probable 
consequences of the industrial and social independence of women, a great 
diminution," &c. 

This was replaced in the 3rd ed. (1852) by the present text, and a note 
attached : " It is truly disgraceful that in a woman's reign not one step has 
been made by law towards removing even the smallest portion of the existing 
injustice to women. The brutal part of the populace can still maltreat, not to 
say kill, their wives, with the next thing to impunity ; and as to civil and 
social status, in framing a new reform bill for the extension of the elective 
franchise, the opportunity was not taken for so small a recognition of some- 
thing like equality of rights, as would have been made by admitting to the 
suffrage women of the same class and the same householding and tax-paying 
qualifications as the men who already possess it." 

Further comments were added to the note in the 4th ed. (1857) : " Mr. 
Fitzroy's Act for the Better Protection of Women and Children against Assaults, 
is a well-meant though inadequate attempt to wipe off the former reproach. 
The second is more flagrant than ever, another Reform Bill having been since 
presented, largely extending the franchise among many classes of men, but 
leaving all women in their existing state of political as well as social servitude." 

The whole note disappeared in the 5th ed. (1862).] 

^ [At this point was omitted from the 3rd ed. (1852) the following passage 
of the original (1848) text : '* To work at the bidding and for the profit of 



PROBABLE FUTURE OF THE LABOURING CLASSES i 761 

through the class of servants in their way to that of employers ; but 
not to remain in it all their lives. To begin as hired labourers, then 
after a few years to work on their own account, and finally employ 
others, is the normal condition of labourers in a new country, rapidly 
increasing in wealth and population, Uke America or AustraUa. 
1 But in an old and fully peopled country, those who begin Kfe as 
labourers for hire, as a general rule, continue such to the end, unless 
they sink into the still lower grade of recipients of pubHc charity. 
In the present stage of human progress, when ideas of equahty are 
daily spreading more widely among the poorer classes, and can no 
longer be checked by anything short of the entire suppression of 
printed discussion and even of freedom of speech, it is not to be 
expected that the division of the human race into two hereditary 
classes, employers and employed, can be permanently maintained. 
The relation is nearly as unsatisfactory to the payer of wages as to 
the receiver. If the rich regard the poor, as by a kind of natural 
law, their servants and dependents, the rich in their turn are regarded 
as a mere prey and pasture for the poor ; the subject of demands 
and expectations wholly indefinite, increasing in extent with every 
concession made to them, ^xhe total absence of regard for justice 
or fairness in the relations between the two, is as marked on the 
side of the employed as on that of the employers. We look in vain 
among the working classes in general for the just pride which will 
choose to give good work for good wages ; for the most part, their 
sole endeavour is to receive as much, and return as Httle in the 
shape of service, as possible. It will sooner or later become insup- 
portable to the employing classes, to live in close and hourly contact 
with persons whose interests and feehngs are in hostihty to 
them. Capitalists are almost as much interested as labourers in 

another, without any interest in the work — the price of their labour being 
adjusted by hostile competition, one side demanding as much and the other 
paying as little as possible — is not, even when wages are high, a satisfactory 
state to human beiags of educated intelligence, who have ceased to think 
themselves naturally inferior to those whom they serve."] 

^ [The rest of the paragraph, with the exception of the two sentences indicated 
in the next note, replaced in the 3rd ed. (1852) the following single sentence 
of the original text : " But something else is required when wealth increases 
slowly, or has reached the stationary state, when positions, instead of being 
more mobile, would tend to be much more permanent than at present, and the 
condition of any portion of mankind could only be desirable, if made desirable 
from the first."] . , 

- [This and the following sentence are an expansion in the 4th ed. (1857) 
of the clause in the 3rd : " while the return given in the shape of service is 
nought to be reduced to the lowest minimum."] 



762 J5U0K IV. CHAPTER VII. § 4 

placing the operations of industry on such, a footing, that those who 
labour for them may feel the same interest in the work, which is 
felt by those who labour on their own account. 

The opinion expressed in a former part of this treatise respecting 
small landed properties and peasant proprietors, may have made 
the reader anticipate that a wide diffusion of property in land is the 
resource on which I rely for exempting at least the agricultural 
labourers from exclusive dependence on labour for hire. Such, 
however, is not my opinion. I indeed deem that form of agricultural 
economy to be most groundlessly cried down, and to be greatly 
preferable, in its aggregate effects on human happiness, to hired 
labour in any form in which it exists at present ; because the 
prudential check to population acts more directly, and is shown by 
experience to be more efficacious ; and because, in point of security, 
of independence, of exercise of any other than the animal faculties, 
the state of a peasant proprietor is far superior to that of an agricul- 
tural labourer in this or in any other old country. WTiere the 
former system already exists, and works on the whole satisfactorily, 
I should regret, in the present state of human intelHgence, to see it 
aboHshed in order to make way for the other, under a pedantic notion 
of agricultural improvement as a thing necessarily the same in every 
diversity of circumstances. In a backward state of industrial 
improvement, as in Ireland, I should urge its introduction, in 
preference to an exclusive system of hired labour ; as a more 
powerful instrument for raising a population from semi-savage 
Kstlessness and recklessness, to persevering industry and prudent 
calculation. 

But a people who have once adopted the large system of produc- 
tion, either in manufactures or in agriculture, are not hkely to recede 
from it ; and when population is kept in due proportion to the 
means of support, it is not desirable that they should. Labour is 
unquestionably more productive on the system of large industrial 
enterprises ; the produce, if not greater absolutely, is greater in 
proportion to the labour employed : the same number of persons can 
be supported equally well with less toil and greater leisure ; which 
will be wholly an advantage, as soon as civihzation and improvement 
have so far advanced, that what is a benefit to the whole shall be a 
benefit to each individual composing it.i And in the moral aspect of 

^ [The remainder of this paragraph (subjected subsequently to verbal 
alterations) replaced in the 3rd ed. (1852) the following original (1848) text : 
" The problem is, to obtain the efficiency and economy of production on a large 



PROBABLE FUTURE OF THE LABOURING CLASSES 763 

the question, whicli is still more important tlian tlie economical, 
something better should be aimed at as the goal of industrial im- 
provement, than to disperse mankind over the earth in single 
famiHes, each ruled internally, as families now are, by a patriarchal 
despot, and having scarcely any community of interest, or necessary 
mental communion, with other human beings. The domination of 
the head of the family over the other members, in this state of things, 
is absolute ; while the effect on his own mind tends towards con- 
centration of all interests in the family, considered as an expansion 
of self, and absorption of all passions in that of exclusive possession, 
of all cares in those of preservation and acquisition. As a step out 
of the merely animal state into the human, out of reckless abandon- 
ment to brute instincts into prudential foresight and self-government, 
this moral condition may be seen without displeasure. But if 
public spirit, generous sentiments, or true justice and equality are 
desired, association, not isolation, of interests, is the school in which \. 
these excellences are nurtured. The aim of improvement should be 
not solely to place human beings in a condition in which they will 
be able to do without one another, but to enable them to work 
with or for one another in relations not involving dependence. 
Hitherto there has been no alternative for those who Uved by their 
labour, but that of labouring either each for himself alone, or for a 
master. But the civilizing and improving influences of association, ' 
and the efficiency and economy of production on a large scale, may 
be obtained without dividing the producers into two parties with 
hostile interests and feelings, the many who do the work being mere 
servants under the command of the one who suppUes the funds, and 
having no interest of their own in the enterprise except to earn their 
wages with as httle labour as possible. The speculations and 
discussions of the last fifty years, and the events of the last thirty ,i 
are abundantly conclusive on this point. If the improvement 
which even triumphant military despotism has only retarded, not 
stopped, shall continue its course,^ there can be Httle doubt that the 
status of hired labourers will gradually tend to confine itself to the 

scale, without dividing tke producers -into two parties with hostile interests, 
employers and employed, the many who do the work being mere servants under 
the command of the one who supplies the funds, and having no interest of 
their own in the enterprise, except to fulfil their contract and earn their wages."] 

1 [3rd ed. (1852), " five " ; 4th (1857), " ten " ; 6th (1865), " twenty " ; 7th 
(1871), " thirty."] 

2 [So since 5th ed. (1862). In the 3rd and 4th, " Unless the military despotism 
now triumphant on the Continent should succeed in its nefarious attempts to 
throw back the human mind."] 



764 BOOK IV. CHAPTEH VII. § 5 

description of workpeople whose low moral qualities render them 
unfit for anything more independent : and that the relation of 
masters and workpeople will be gradually superseded by partnership, 
in one of two forms : in some cases, association of the labourers 
with the capitalist ; in others, and perhaps finally in all,^ association 
of labourers among themselves. 

^ § 5. The first of these forms of association has long been 
practised, not indeed as a rule, but as an exception. In several 
departments of industry there are already cases in which every one 
who contributes to the work, either by labour or by pecuniary 
resources, has a partner's interest in it, proportional to the value of 
his contribution. It is already a common practice to remunerate 
those in whom peculiar trust is reposed, by means of a percentage 
on the profits : and cases exist in which the principle is, with ex- 
cellent success, carried down to the class of mere manual labourers. 

In the American ships trading to China, it has long been the 

^ [In 3rd ed. : " temporarily and in some cases . . ., in other cases and 
finally in all." In 5th ed. (1862) : " perhaps finaUy in all." In 6th ed. (1865), 
" temporarily " omitted.] 

2 [The following passage, inserted at this point in the 2nd ed. (1849) dis- 
appeared from the 3rd (1852). 

" § 5. It is this feeling, of the nature of the problem " (see supra, p. 761, 
n. 1), " almost as much as despair of the improvement of the condition of the 
labouring masses by other means, which has caused so great a multiplication of 
projects for the ' organization of industry ' by the extension and development 
of the co-operative or joint stock principle : some of the more conspicuous of 
which have been described and characterized in an early chapter of this work. 
It is most desirable that all these schemes should have opportunity and en- 
couragement to test their capabilities by actual experiment. There are, in 
almost all of them, many features, in themselves well worth submitting to that 
test ; while, on the other hand, the exaggerated expectations entertained by 
large and growing multitudes in all the principal nations of the world, con- 
cerning what it is possible, in the present state of human improvement, to ejffect 
by such means, have no chance of being corrected except by a fair trial in 
practice. The French Revolution of February 1848, at first seemed to have 
opened a fair field for the trial of such experiments, on a perfectly safe scale, 
and with every advantage that could be derived from the countenance of a 
government which sincerely desired their success. It is much to be regretted 
that these prospects have been frustrated, and that the reaction of the middle 
class against anti-property doctrines has engendered for the present an un- 
reasoning and undiscriminating antipathy to all ideas, however harmless or 
however just, which have the smallest savour of Socialism. This is a disposition 
of mind, of which the influential classes, both in France and elsewhere, wiU find it 
necessary to divest themselves. Socialism has now become irrevocably one of 
the leading elements in European politics. The questions raised by it wiU not 
be set at rest by merely refusing to listen to it ; but only by a more and more 
complete realization of the ends which Socialism aims at, not neglecting its means 
so far as they can be employed with advantage."} 



PROBABLE FUTURE OE THE LABOURING CLASSES 765 

custom for every sailor to liave an interest in tlie profits of the voyage; 
and to tHs lias been ascribed tbe general good conduct of those 
seamen, and the extreme rarity of any collision between them and 
the government or people of the country. An instance in England, 
not so well known as it deserves to be, is that of the Cornish miners. 
" In Cornwall the mines are worked strictly on the system of joint 
adventure ; gangs of miners contracting with the agent, who 
represents the owner of the mine, to execute a certain portion of a 
vein and fit the ore for market, at the price of so much in the pound 
of the sum for which the ore is sold. These contracts are put up at 
certain regular periods, generally every two months, and taken by a 
voluntary partnership of men accustomed to the mine. This system 
has its disadvantages, in consequence of the uncertainty and 
irregularity of the earnings, and consequent necessity of living for 
long periods on credit ; but it has advantages which more than 
counterbalance these drawbacks. It produces a degree of intelligence, 
independence, and moral elevation, which raise the condition and 
character of the Cornish miner far above that of the generality of the 
labouring class. We are told by Dr. Barham, that ' they are not 
only, as a class, intelHgent for labourers, but men of considerable 
knowledge.' Also, that ' they have a character of independence, 
something American, the system by which the contracts are let 
giving the takers entire freedom to make arrangements among 
themselves ; so that each man feels, as a partner in his Httle firm, 
that he meets his employers on nearly equal terms.' . . . With this 
basis of inteUigence and independence in their character, we are not 
surprised when we hear that ' a very great number of miners are now 
located on possessions of their own, leased for three lives or ninety- 
nine years, on which they have built houses ; ' or that ' 281,541?. 
are deposited in savings banks in Cornwall, of which two-thirds 
are estimated to belong to miners.' " * 

Mr. B abb age, who also gives an account of this system, observes 
that the payment to the crews of whaHng ships is governed by a 
similar principle ; and that " the profits arising from fishing with 
nets on the south coasts of England are thus divided : one-half the 
produce belongs to the owner of the boat and net ; the other half 
is divided in equal portions between the persons using it, who are 
also bound to assist in repairing the net when required." Mr. 

* This passage is from the Prize Essay on the Causes and Remedies of National 
Distress, by Mr. Samuel Laing. The extracts which it includes are from the 
Appendix to the Report of the Children'' s Employment Commission. 



766 BOOK IV. CHAPTER VII. § 5 

Babbage has the great merit of having pointed out the practicabihty, 
and the advantage, of extending the principle to manufacturing 
industry generally.* ^ 

* Economy of Machinery and Manufactures, 3rd edition, cli. 26. 

* [The long quotation from Babbage, which appeared in the 1st and 2nd eds. 
(1848, 1849), disappeared from the 3rd (1852) : " I venture to quote the principal 
part of his observations on the subject. 

* The general principles on which the proposed system is founded, are — 1st. 
That a considerable part of the wages received by each person employed, should 
depend on the profits made by the establishment ; and 2nd. That every person 
connected with it should derive more advantage from applying any improve- 
ment he might discover, to the factory in which he is employed, than he could 
by any other course. 

* It would be difficult to prevail on the large capitalist to enter upon any 
system, which would change the division of the profits arising from the employ- 
ment of his capital in setting skill and labour in action ; any alteration, there- 
fore, must be expected rather from the small capitalist, or from the higher 
class of workmen, who combine the two characters ; and to these latter classes, 
whose welfare will be first affected, the change is most important. I shall 
therefore first point out the course to be pursued in making the experiment ; 
and then, taking a particular branch of trade as an illustration, I shall 
examine the merits and defects of the proposed system as applied to it. 

* Let us suppose, in some large manufacturing town, ten or twelve of the 
most intelligent and skilful workmen to unite, whose characters for sobriety and 
steadiness are good, and are well known among their class. Such persons will 
each possess some small portion of capital ; and let them join with one or two 
others who have raised themselves into the class of small master-manufacturers, 
and therefore possess rather a larger portion of capital. Let these persons, after 
well considering the subject, agree to establish a manufactory of fire-irons and 
fenders ; and let us suppose that each of the ten workmen can command forty 
pounds, and each of the small capitalists possesses two hundred pounds : thus 
they have a capital of 800?. with which to commence business, and for the sake 
of simplifying, let us further suppose the labour of each of these twelve persons 
to be worth two pounds a week. One portion of their capital will be expended 
in procuring the tools necessary for their trade, which we shall take at 400L, 
and this must be considered as their fixed capital. The remaining 400Z. must 
be employed as circulating capital, in purchasing the iron with which their 
articles are made, in paying the rent of their workshops, and in supporting 
themselves and their families until 3ome portion of it is replaced by the sale 
of the goods produced. 

' Now the first question to be settled is, what proportion of the profit should 
be allowed for the use of capital, and what for skill and labour ? It does not 
seem possible to decide this question by any abstract reasoning : if the capital 
supplied by each partner is equal, all difficulty will be removed ; if otherwise, 
the proportion must be left to find its level, and will be discovered by experience ; 
and it is probable that it will not fluctuate much. Suppose it to be agreed that 
the capital of 8001. shall receive the wages of one workman. At the end of 
each week, every workman is to receive one pound as wages, and one pound is 
to be divided amongst the owners of the capital. After a few weeks the returns 
will begin to come in ; and they will soon become nearly uniform. Accurate 
accounts should be kept of every expense and of all the sales ; and at the end of 
each week the profit should be divided. A certain portion should be laid aside 
as a reserved fund, another portion for repair of the tools, and the remainder 
being divided into thirteen parts, one of these parts would be divided amongst 



PROBABLE FUTURE OF THE LABOURING CLASSES 767 

1 Some attention lias been excited by an experiment of this 
nature, commenced above thirty years ago by a Paris tradesman, 

the capitalists and one belong to each workman. Thus each man would, in 
ordinary circumstances, make up his usual wages of two pounds weekly. If 
the factory went on prosperously, the wages of the men would increase ; if the 
sales fell off, they would be diminished. It is important that every person 
employed in the establishment, whatever might be the amount paid for his 
services, whether he act as labourer or porter, or as the clerk who keeps the 
accounts, or as book-keeper employed for a few hours once a week to superintend 
them, should receive one-half of what his service is worth in fixed salary, the other 
part varying with the success of the undertaking. 

* The result of such arrangements in a factory would be, 

* L That every person engaged in it would have a direct interest in its 
prosperity ; since the effect of any success, or falling off, would almost 
immediately produce a corresponding change in his own weekly receipts. 

* 2. Every person concerned in the factory would have an immediate interest 
in preventing any waste or mismanagement in all the departments. 

* 3. The talents of all connected with it would be strongly directed to 
improvement in every department. 

' 4. None but workmen of high character and qualifications could obtain 
admission into such establishments, because when any additional hands were 
required, it would be the common interest of all to admit only the most respect- 
able and skilful, and it would be far less easy to impose upon a dozen workmen 
than upon the single proprietor of a factory. 

* 5. When any circumstance produced a glut in the market, more skill 
would be directed to diminishing the cost of production ; and a portion of the 
time of the men might then be occupied in repairing and improving their tools, 
for which a reserved fund would pay, thus checking present, and at the same 
time facilitating future, production, 

* 6. Another advantage, of no small importance, would be the total removal 
of all real or imaginary causes for combinations. The workmen and the capitalist 
would so shade into each other — would so evidently have a common interest, 
and their difficulties and distresses would be mutually so well understood, that 
instead of combining to oppress one another, the only combination which could 
exist would be a most powerful union between both parties to overcome their 
common difficulties. 

* One of the difficulties attending such a system is, that capitalists would at 
first fear to embark in it, imagining that the workmen would receive too large 
a share of the profits : and it is quite true that the workmen would have a 
larger share than at present : but at the same time, it is presumed the effect of 
the whole system would be, that the total profits of the establishment being 
much increased, the smaller proportion allowed to capital under this system 
would yet be greater in actual amount, than that which results to it from the 
larger share in the system now existing. 

* A difficulty would occur also in discharging workmen who behaved ill, or 
who were not competent to their work ; this would arise from their having a 
certain interest in the reserved fund, and perhaps from their possessing a certain 
portion of the capital employed ; but without entering into detail, it may be 
observed, that such cases might be determined on by meetings of the whole 
establishment ; and that if the policy of the laws favoured such establishments, 
it would scarcely be more difficult to enforce just regulations than it now is to 
enforce some which are unjust, by means of combinations either amongst the 
masters or the men.' "] 

^ [In the original ed. (1849) this paragraph began thus : " In this imaginary 



768 BOOK IV. CHAPTER VII. § 5 

a house-painter, M. Leclaire,* and described by Mm in a pamphlet 
published in the year 1842. M. Leclaire, according to his statement, 
employs on an average two hundred workmen, whom he pays in the 
usual manner, by fixed wages or salaries. He assigns to himself, 
besides interest for his capital, a fixed allowance for his labour and 
responsibiUty as manager. At the end of the year, the surplus 
profits are divided among the body, himself included, in the proportion 
of their salaries.f The reasons by which M. Leclaire was led to 
adopt this system are highly instructive. Finding the conduct of 
his workmen unsatisfactory, he first tried the effect of giving higher 
wages, and by this he managed to obtain a body of excellent 
workmen, who would not quit his service for any other. " Having 
thus succeeded " (I quote from an abstract of the pamphlet in 
Chambers' Journal,^) " in producing some sort of stability in the 
arrangement of his establishment, M. Leclaire expected, he says, to 
enjoy greater peace of mind. In this, however, he was disappointed. 
So long as he was able to superintend everything himself, from the 
general concerns of his business down to its minutest details, he did 
enjoy a certain satisfaction ; but from the moment that, owing to 
the increase of his business, he found that he could be nothing more 
than the centre from which orders were issued, and to which reports 
were brought in, his former anxiety and discomfort returned upon 
him." He speaks lightly of the other sources of anxiety to which 
a tradesman is subject, but describes as an incessant cause of 
vexation the losses arising from the misconduct of workmen. An 
employer " will find workmen whose indifference to his interest is 
such that they do not perform two-thirds of the amount of work 
which they are capable of ; hence the continual fretting of masters, 

case " described by Babbage, see supra, p. 766, n. 1, " it is supposed that each 
labourer brings some small portion of capital into the concern : but the principle 
is equally applicable to the ordinary case in which the whole capital belongs to 
an individual capitalist. An application of it to such a case is actually in pro- 
gress by a Paris tradesman," &c. The present text, but with " about ten years 
ago," dates from the 3rd ed. (1852). The 4th, 5th, and 6th eds. (1857, 1862, 1865) 
have " about sixteen years ago " ; the 7th (1871) " above thirty."] 

* His establishment is 11, Rue Saint Georges. 

f [1849] It appears, however, that the workmen whom M. Leclaire had 
admitted to this participation of profits, were only a portion (rather less than 
half) of the whole numlber whom he employed. This is explained by another 
part of his system. M. Leclaire pays the full market rate of wages to all his 
workmen. The share of profit assigned to them is, therefore, a clear addition 
to the ordinary gains of their class, which he very laudably uses as an instru- 
ment of improvement, by making it the reward of desert, or the recompense 
for peculiar trust. 

} For September 27, 1845. 



PROBABLE FUTURE OF THE LABOURING CLASSES 769 

who, seeing their interests neglected, believe themselves entitled to 
suppose that workmen are constantly conspiring to ruin those from 
whom they derive their liveUhood. If the journeyman were sure 
of constant employment, his position would in some respects be more 
enviable than that of the master, because he is assured of a certain 
amount of day's wages, which he will get whether he works much or 
little. He runs no risk, and has no other motive to stimulate him 
to do his best than his own sense of duty. The master, on the other 
hand, depends greatly on chance for his returns : his position is one 
of continual irritation and anxiety. This would no longer be the 
case to the same extent, if the interests of the master and those of the 
workmen were bound up with each other, connected by some bond 
of mutual security, such as that which would be obtained by the 
plan of a yearly division of profits." 

Even in the first year during which M. Leclaire's experiment was 
in complete operation, the success was remarkable. Not one of his 
journeymen who worked as many as three hundred days, earned in 
that year less than 1500 francs, and some considerably more. His 
highest rate of daily wages being four francs, or 1200 francs for 300 
days, the remaining 300 francs, or 121., must have been the smallest 
amount which any journeyman, who worked that number of days, 
obtained as his proportion of the surplus profit. M. Leclaire 
describes in strong terms the improvement which was already 
manifest in the habits and demeanour of his workmen, not merely 
when at work, and in their relations with their employer, but at 
other times and in other relations, showing increased respect both for 
others and for themselves. ^ M. Chevaher, in a work published in 
1848,* stated on M. Leclaire's authority, that the increased zeal 
of the workpeople continued to be, a full compensation to him, even 
in a pecuniary sense, for the share of profit which he renounced in 
their favour. 2 And M. Villiaume, in 1857,t observes : — " Though 
he has always kept himself free from the frauds which are but too 
frequent in his profession, he has always been able to hold his ground 
against competition, and has acquired a handsome competency in 
spite of the reUnquishment of so great a portion of his profits. 
Assuredly he has been only thus successful because the unusual 
activity of his workpeople, and the watch which they kept over one 

> [Added in 2nd ed. (1849).] 

* Lettres sur V Organisation du Travail, by Michel Chevalier, lettre xiv. 
2 [The concluding sentence of this paragraph, together with the next para- 
graph and the examples quoted in the note, were added in the 5th ed. (1862).] 
•j" Nouveau Traite d^Economit Politique, 

2 c 



770 BOOK IV. CHAPTER VII. § 5 

anotlier, have compensated him for the sacrifice made in contenting 
himself with only a share of the gain." * 

The beneficent example set by M. Leclaire has been followed, 
with brilliant success, by other employers of labour on a large scale 
at Paris ; and I annex, from the work last referred to (one of the 
ablest of the many able treatises on pohtical economy produced by 
the present generation of the political economists of France), some 
signal examples of the economical and moral benefit arising from 
this admirable *arrangement.t 

* [1865] At the present time M. Leclaire's establishment is conducted on a 
somewhat altered system, though the principle of dividing the profits is main- 
tained. There are now three partners in the concern : M. Leclaire himself, 
one other person (M. Defournaux), and a Provident Society (Societe de Secours 
Mutuels), of which all persons in his employment are the members. (This 
Society owns an excellent library, and has scientific, technical, and other lectures 
regularly delivered to it.) Each of the three partners has 100,000 francs in- 
vested in the concern ; M. Leclaire having advanced to the Provident Society 
as much as was necessary to supply the original insufficiency of their own funds. 
The partnership, on the part of the Society, is limited ; on that of M. Leclaire 
and M. Defournaux, unlimited. These two receive 6000 francs (240Z. ) per annum 
each as wages of superintendence. Of the annual profits they receive half, 
though owning two- thirds of the capital. The remaining half belongs to the 
employes and workpeople ; two-fifths of it being paid to the Provident Society, 
and the other three-fifths divided among the body. M. Leclaire, however, now 
reserves to himself the right of deciding who shall share in the distribution, and 
to what amount ; only binding himself never to retain any part, but to bestow 
whatever has not been awarded to individuals, on the Provident Society. It is 
further provided that in case of the retirement of both the private partners, the 
goodwill and plant shall become, without payment, the property of the Society. 

f " In March 1847, M. Paul Dupont, the head of a Paris printing-office, had 
the idea of taking his workmen into partnership by assigning to them a tenth 
of the profits. He habitually employs three hundred ; two hundred of them 
on piece work, and a hundred by the day. He also employs a hundred extra 
hands, who are not included in the association. The portion of profit which 
falls to the workmen does not bring them in, on the average, more than the 
amount of a fortnight's wages ; but they receive their ordinary pay according 
to the rates established in all the great Paris printing offices ; and have, besides, 
the advantage of medical attendance in illness at the expense of the association, 
and a franc and a half per day while incapacitated for work. The workmen 
cannot draw out their share of profit except on quitting the association. It is 
left at interest (sometimes invested in the public funds), and forms an accumu- 
lating reserve of savings for its owners. 

" M. Dupont and his partners find this association a source of great additional 
profit to them : the workmen, on their side, congratulate themselves daily on 
the happy idea of their employer. Several of them have by their exertions 
caused the establishment to gain a gold medal in 1849, and an honorary medal 
at the Universal Exhibition of 1855 : some even have personally received the 
recompense of their inventions and of their labours. Under an ordinary em- 
ployer, these excellent people would not have had leisure to prosecute their 
inventions, unless by leaving the whole honour to one who was not the author 
of them : but, associated as they were, if the employer had been unjust, two 
hundred men would have obliged him to repair the wrong. 



PROBABLE FUTURE OF THE LABOURING CLASSES 771 

1 Until the passing of the Limited Liability Act, it was held that 
an arrangement similar to M. Leclaire's would have been impossible 
in England, as the workmen could not, in the previous state of the 
law, have been associated in the profits, without being liable for 
losses. One of the many benefits of that great legislative improve- 
ment has been to render partnerships of this description possibk, 
and we may now expect to see them carried into practice. Messrs. 
Briggs, of the Whitwood and Methley collieries, near Norman ton in 
Yorkshire, have taken the first step. They now work these mines by 
a company, two-thirds of the capital of which they themselves 
continue to hold, but undertake, in the allotment of the remaining 
third, to give the preference to the " ofiicials and operatives employed 

" I have visited this establishment, and have been able to see for myself the 
improvement which the partnership produces in the habits of the workpeople. 

" M. Gisquet, formerly Prefect of Police, has long been the proprietor of an 
oil manufactory at St. Denis, the most important one in France next to that 
of M. Darblay, of Corbeil. When in 1848 he took the personal management of 
it, he found workmen who got drunk several days in the week, and during their 
work sung, smoked, and sometimes quarrelled with one another. Many 
unsuccessful attempts had been made to alter this state of things : he accom- 
plished it by forbidding his workmen to get drunk on working days, on pain of 
dismissal, and at the same time promising to share with them, by way of annual 
gratuity, five per cent of his net profits, in shares proportioned to wages, which 
are fixed at the current rates. From that time the reformation has been com- 
plete, and he is surrounded by a hundred workmen full of zeal and devotion. 
Their comforts have been increased by what they have ceased to spend in drink, 
and what they gain by their punctuaUty at work. The annual gratuity has 
amounted, on the average, to the equivalent of six weeks' wages. 

- " M. Beslay, a member of the Chamber of Deputies from 1830 to 1839, and 
afterwards of the Constituent Assembly, has founded an important manufactory 
of steam engines at Paris, in the Faubourg of the Temple. He has taken his 
workpeople into partnership ever since the beginning of 1847, and the contract 
of association is one of the most complete which have been made between 
employers and workpeople." 

The practical sagacity of Chinese emigrants long ago suggested to them, 
according to the report of a recent visitor to Manilla, a similar constitution of 
the relation between an employer and labourers. " In these Chinese shops " 
(at Manilla) " the owner usually engages all the activity of his countrymen 
employed by him in them, by giving each of them a share in the profits of the 
concern, or in fact by making them all small partners in the business, of which 
he of course takes care to retain the Hon's share, so that while doing good for 
him by managing it well, they are also benefiting themselves. To such an 
extent is this principle carried that it is usual to give even their coolies a share 
in the profits of the business in lieu of fixed wages, and the plan appears to suit 
their temper well ; for although they are in general most complete eye-servants 
when working for a fixed wage, they are found to be most industrious and 
useful ones when interested even for the smallest share." — McMicking's 
Recollections of Manilla and the Philippines during 1848, 1849, and 1850, p. 24. 

^ [This paragraph was added in the 6th ed. (1865) ; and it was said that 
Messrs. Briggs " have issued a proposal to work " ; changed to " They now 
work " &c., in the 7th ed. (1871).] 



m BOOK IV. CHAPTER VII. § 6 

in tlie concern ; " and, what is of still greater importance, whenever 
the annual profit exceeds 10 per cent, one-half the excess is divided 
among the workpeople and employes, whether shareholders or not, 
in proportion to their earnings during the year. It is highly honour- 
able to these important employers of labour to have initiated a system 
so full of benefit both to the operatives employed and to the general 
interest of social improvement : and they express no more than a 
just confidence in the principle when they say, that " the adoption 
of the mode of appropriation thus recommended would, it is believed, 
add so great an element of success to the undertaking as to increase 
rather than diminish the dividend to the shareholders." ^ 

2§ 6. The form of association, however, which if mankind 
continue to improve, must be expected in the end to predominate, 

1 [For the abandonment of the'Briggs experiment in 1875 see Schloss, 
Methods of Industrial Remuneration (2nd ed.), p. 282.] 

^ [The opening paragraphs of this section and the account of French co- 
operative societies which follows were added in the 3rd ed. (1852). At the 
same time the following paragraph and section of the original (1848) text were 
removed : 

"Under this system," of M. Leclaire, "as well as under that recommended 
by Mr. Babbage, the labourers are, in reality, taken into partnership with their 
employer. Bringing nothing into the common concern but their labour, while 
he brings not only his labour of direction and superintendence but his capital 
also, they have justly a smaller share of the profits ; this, however, is a matter 
of private arrangement in all partnerships ; one partner has a large, another a 
small share, according to their agreement, grounded on the equivalent which is 
given by each. The essence, however, of a partnership is obtained, since each 
benefits by all things that are beneficial to the concern, and loses by all which 
are injurious. It is, in the fullest sense, the common concern of all. 

'* § 6. To this principle, in whatever form embodied, it seems to me that 
futurity has to look for obtaining the benefits of co-operation, without con- 
stituting the numerical majority of the co-operators an inferior caste. The 
objections that apply to a ' co-operative society,' in the Communist or Owenite 
sense, in which, by force of giving to every member of the body a share in the 
common interest, no one has a greater share in it than another, are not applicable 
to what is now suggested. It is expedient that those, whose performance of the 
part assigned to them is the most essential to the common end, should have a 
greater amount of personal interest in the issue of the enterprise. If those who 
supply the funds, and incur the whole risk of the undertaking, obtained no 
greater reward or more influential voice than the rest, few would practise the 
abstinence through which those funds are acquired and kept in existence. Up 
to a certain point, however, the principle of giving to every person concerned 
an interest in the profits is an actual benefit to the capitalist, not only (as M. 
Leclaire has testified) in point of ease and comfort, but even in pecuniary 
advantage. And after the point of greatest benefit to the employers has been 
attained, the participation of the labourers may be carried somewhat further 
without any material abatement from that maximum of benefit. At what 
point, in each employment of capital, this ultimatum is to be found, will one 
day be known and understood from experience ; and up to that point it is not 



PROBABLE FUTURE OF THE LABOURIJ^G CLASSES 773 

is not that which can exist between a capitalist as chief, and work- 
people without a voice in the management, but the association of the 
labourers themselves on terms of equality, collectively owning the 
capital with which they carry on their operations, and working under 
managers elected and removable by themselves. So long as this 
idea remained in a state of theory, in the writings of Owen or of 
Louis Blanc, it may have appeared, to the common modes of judg- 
ment, incapable of being realized, and not likely to be tried unless 
by seizing on the existing capital, and confiscating it for the benefit 
of the labourers ; which is even now imagined by many persons, 
and pretended by more, both in England and on the Continent, to 
be the meaning and purpose of Socialism. But there is a capacity 
of exertion and self-denial in the masses of mankind, which is never 
known but on the rare occasions on which it is appealed to in the 
name of some great idea or elevated sentiment. Such an appeal was 
made by the French Revolution of 1848. For the first time it then 
seemed to the intelligent and generous of the working classes of a 
great nation that they had obtained a government who sincerely 
desired the freedom and dignity of the many, and who did not look 
upon it as their natural and legitimate state to be instruments of 
production, worked for the benefit of the possessors of capital. 
Under this encouragement, the ideas sown by Socialist writers, of 
an emancipation of labour to be effected by means of association, 
throve and fructified ; and many working people came to the 
resolution, not only that they would work for one another, instead 
of working for a master tradesman or manufacturer, but that they 
would also free themselves, at whatever cost of labour or privation, 
from the necessity of paying, out of the produce of their industry, 

unreasonable to expect that the partnership principle will be, at no very distant 
time, extended. 

"The value of this ' organization of industry,' for heahng the widening and 
embittering feud between the class of labourers and the class of capitaHsts, 
must, I think, impress itself by degrees on all who habitually reflect on the con- 
dition and tendencies of modern society. I cannot conceive how any such 
person can persuade himself that the majority of the community will for ever, 
or even for much longer, consent to hew wood and draw water all their lives in 
the service and for the benefit of others; or can doubt, that they will be less and 
less willing to co-operate as subordinate agents in any work, when they have 
no^interest in the result, and that it will be more and more difficult to obtain the 
best work-people, or the best services of any work-people, except on con- 
ditions similar in principle to those of M. Leclaire. Although, therefore, arrange- 
ments of this sort are now in their infancy, their multiplication and growth, 
when once they enter into the general domain of popular discussion, are among 
the things which may most confidently be expected."] 



774 150UJS. IV. UMAFi-KJrl Vii. § 6 

a heavy tribute for the use of capital ; that they would extinguish 
this tax, not by robbing the capitalists of what they or their prede- 
cessors had acquired by labour and preserved by economy, but by 
honestly acquiring capital for themselves. If only a few operatives 
had attempted this arduous task, or if, while many attempted it, 
a few only had succeeded, their success might have been deemed 
to furnish no argument for their system as a permanent mode of 
industrial organization. But, excluding all the instances of failure, 
there exist, or existed a short time ago,^ upwards of a hundred 
successful, and many eminently prosperous, associations of operatives 
in Paris alone, besides a considerable number in the departments. 
An instructive sketch of their history and principles has been 
published, under the title of L* Association Ouvriere Industrielle 
et Agricole, by H. Feugueray : and as it is frequently affirmed in 
EngUsh newspapers that the associations at Paris have failed, by 
writers who appear to mistake the predictions of their enemies at their 
first formation for the testimonies of subsequent experience, I think 
it important to show by quotations from M. Feugueray's volume^ 
strengthened by still later testimonies,^ that these representations 
are not only wide of the truth, but the extreme contrary of it. 

The capital of most of the associations was originally confined 
to the few tools belonging to the founders, and the small sums which 
could be collected from their savings, or which were lent to them 
by other workpeople as poor as themselves. In some cases, how- 
ever, loans of capital were made to them by the republican govern- 
ment : but the associations which obtained these advances, or at 
least which obtained them before they had already achieved success, 
are, it appears, in general by no means the most prosperous. The 
most striking instances of prosperity are in the case of those who 
have had nothing to rely on but their own slender means and the 
small loans of fellow-workmen, and who Uved on bread and water 
while they devoted the whole surplus of their gains to the formation 
of a capital. 

" Often," says M. Feugueray,* " there was no money at all in 
hand, and no wages could be paid. The goods did not go off, the 
payments did not come in, bills could not get discounted, the 
warehouse of materials was empty ; they had to submit to priva- 

1 [So since 4th ed. (1857). Originally, in 3rd ed. (1852), « a few months 
ago."] 

2 [" Strengthened " &c., added in 5th ed. (1862).] 
=^ P. 112. 



PROBABLE FUTURE OF THE LABOURING CLASSES 775 

tion, to reduce all expenses to the minimum, to live sometimes on 
bread and water. ... It is at the price of these hardships and 
anxieties that men who began with hardly any resource but their 
good will and their hands, succeeded in creating customers, in 
acquiring credit, forming at last a joint capital, and thus found- 
ing associations whose futurity now seems to be assured." 

I will quote at length the remarkable history of one of these 
associations.* 

" The necessity of a large capital for the establishment of a 
pianoforte manufactory was so fully recognised in the trade, that 
in 1848 the delegates of several hundred workmen who had combined 
to form a great association, sohcited from the government a subven- 
tion of 300,000 francs [12,000L], being a tenth part of the whole 
sum voted by the National Assembly. I remember that, as one of 
the Commission charged with the distribution of the fund, I tried 
in vain for two hours to convince the two delegates with whom the 
Commission conferred, that their request was exorbitant. They 
answered imperturbably, that their trade was a pecuHar one ; that 
the association could only have a chance of success on a very large 
scale and with a considerable capital ; that 300,000 francs were 
the smallest sum which could suffice them, and that they could 
not reduce the demand by a single sou. The Commission refused. 

" Now, after this refusal, the project of a gxeat association being 
abandoned, what happened was this. Fourteen workmen, and it is 
singular that among them was one of the two delegates, resolved 
to set up by themselves a pianoforte-making association. The 
project was hazardous on the part of men who had neither money nor 
credit : but faith does not reason — it acts. 

" Our fourteen men therefore went to work, and I borrow from 
an excellent article by M. Cochut in the National, the accuracy of 
which I can attest, the following account of their first proceedings. 

" Some of them, who had worked on their own account, brought 
with them in tools and materials the value of about 2000 francs 
[80L]. There was needed besides a circulating capital. Each 
member, not without difficulty, managed to subscribe 10 francs 
[8s.]. A certain number of workmen not interested in the society 
gave their adhesion by bringing small contributions. On March 10, 
1849, a sum of 229J francs [9Z. 3s. 7ld.] having been reaHzed, the 
association was declared constituted. 

" This sum was not, even sufficient for setting up, and for the . 

* Pp. 113-«. 



776 BOOK IV. CHAPTER VII. § 6 

small expenses required from day to day for the service of a workshop. 
There being nothing left for wages, nearly two months elapsed 
without their touching a farthing. How did they subsist during 
this interval ? As workmen live when out of employment, by sharing 
the portion of a comrade who is in work ; by selling or pawning bit 
by bit the few articles they possess. 

" They had executed some orders. They received the payment 
on the 4th of May. That day was for them like a victory at the 
opening of a campaign, and they determined to celebrate it. After 
paying all debts that had fallen due, the dividend of each member 
amounted to 6 francs 61 centimes. They agreed to allow to each 
5 francs [is.] on account of his wages, and to devote the surplus to a 
fraternal repast. The fourteen shareholders, most of whom had not 
tasted wine for a year past, met, along with their wives and children. 
They expended 32 sous [Is. 4:d.] per family. This day is still spoken 
of in their workshops with an emotion which it is difficult not to 
share. 

" For a month longer it was necessary to content themselves 
with the receipt of five francs per week. In the course of June a 
baker, either from love of music or on speculation, offered to buy a 
piano, paying for it in bread. The bargain was made at the price 
of 480 francs. It was a piece of good luck to the association. They 
had now at least what was indispensable. They determined not to 
reckon the bread in the account of wages. Each ate according to his 
appetite, or rather to that of his family ; for the married shareholders 
were allowed to take away bread freely for their wives and children. 

" Meanwhile the association, being composed of excellent 
workmen, gradually surmounted the obstacles and privations which 
had embarrassed its starting. Its account-books ofier the best 
proof of the progress which its pianos had made in the estimation 
of buyers. From August 1849 the weekly contingent rises to 10, 
15, and 20 francs per week ; and this last sum does not represent 
all their profits, each partner having left in the common stock much 
more than he received from it. Indeed it is not by the sum which 
the member receives weekly that his situation can be judged, but 
by the share acquired in the ownership of a property already con- 
siderable. The following was the position of the association when 
it took stock on the 30th December 1850. 

" At this period the number of shareholders was thirty- two. 
Large workshops and warehouses, rented for 2000 francs, were no 
longer sufficient for the business. 



PROBABLE FUTURE OF THE LABOURING CLASSES 777 

Frs. Cents. 

Independent of tools, valued at 5,922 60 

They possessed in goods and especially in 

materials, the value of 22,972 28 

They had in cash . 1,021 10 

in bills . 3,540 

There was due to them "'' . 5,861 90 

They had thus to their credit 39,317 88 

Against this are only to be debited 4737 francs 
86 centimes due to creditors, and 1650 francs 
to eighty adherents ; f in all 6,387 86 

Remaining 32,930 02 

[£1319 45.] 

which formed their indivisible capital and the reserve of the in- 
dividual members. At this period the association had 76 pianos 
under construction, and received more orders than they could 
execute." 

From a later report we learn that this society subsequently 
divided itself into two separate associations, one of which, in 1854, 
already possessed a circulating capital of 56,000 francs f [2240L]. In 
1863 its total capital was 6520Z. 

* " The last two items consisted of safe securities, nearly aU of which have 
since been realised." 

f " These adherents are workmen of the trade, who subscribed smaU sums 
to the association at its commencement : a portion of them were reimbursed 
in the beginning of 1851. The sum due to creditors has also been much re- 
duced : on the 23rd of April it only amounted to 113 francs 59 centimes." 

X Article by M. Cherbuliez on " Operative Associations," in the Journal 
des Economistes for November 1860. 

I subjoin, from M. ViUiaume and M. Cherbuliez, detailed particulars of other 
eminently successful experiments by associated workpeople. 

" We wUl first cite," says M. Cherbuliez, " as having attained its object 
and arrived at a definite result, the Association Remquet, of the Rue Garanciere, 
at Paris, whose founder, in 1848, was a foreman in M. Renouard's printing 
establishment. That firm being under the necessity of winding up, he proposed 
to his fellow-workmen to join with him in continuing the enterprise on their 
own account, asking a subvention from the government to cover the purchase- 
money of the business and the first expenses. Fifteen of them accepted the 
proposal, and formed an association, whose statutes fixed the wages for every 
kind of work, and provided for the gradual formation of a working capital by 
a deduction of 25 per cent, from all wages and salaries, on which deduction 
no dividend or interest was to be aUowed during the ten years that the asso- 
ciation was intended to last. Remquet asked and obtained for himself the 
entire direction of the enterprise, at a very moderate fixed salary. At the 



778 BOOK IV. CHAPTER VII. § 6 

The same admirable qualities by which the associations were 
carried through their early struggles, maintained them in their 
increasing prosperity. Their rules of discipHne, instead of being 
more lax, are stricter than those of ordinary workshops ; but 
being rules self-imposed, for the manifest good of the community, 
and not for the convenience of an employer regarded as having an 

winding up, the entire profits were to be divided among all the members, 
proportionally to their share in the capital, that is, to the work they had done. 
A subvention of 80,000 francs was granted by the State, not without great 
difficulty, and on very onerous conditions. In spite of these conditions, and 
of the unfavourable circumstances resulting from the political situation of the 
country, the association prospered so well, that on the winding up, after re- 
paying the advance made by the State, it was in possession of a clear capital of 
155,000 francs [6200Z.], the division of which gave on the average between ten 
and eleven thousand francs to each partner ; 7000 being the smallest and 
18,000 the largest share. 

" The Fraternal Association of Working Tinmen and Lampmakers had 
beeu founded in March 1848 by 600 operatives, comprising nearly the whole 
body of the trade. This first attempt, inspired by unpractical ideas, not having 
survived the fatal days of June, a new association was formed of more modest 
proportions. Originally composed of forty members, it commenced business 
in 1849 with a capital composed of the subscriptions of its members, without 
asking for a subvention. After various vicissitudes, which reduced the number 
of partners to three, then brought it back to fourteen, then again sunk it to 
three, it ended by keeping together forty-six members, who quietly remodelled 
their statutes in the points which experience had shown to be faulty, and their 
number having been raised by successive steps to 100, they possessed, in 1858, 
a joint property of 50,000 francs, and were in a condition to divide annually 
20,000 francs. 

" The Association of Operative Jewellers, the oldest of all, had been founded 
in 1831 by eight workmen, with a capital of 200 francs [81.] derived from their 
united savings. A subvention of 24,000 francs enabled them in 1849 greatly 
to extend their operations, which in 1858 had already attained the value of 
140,000 francs, and gave to each partner an annual dividend equal to double 
his wages." 

The following are from M. Villiaume : — 

" After the insurrection of June 1848, work was suspended in the Faubourg 
St. Antoine, which, as we know, is principally occupied by furniture- makers. 
Some operative arm-chair makers made an appeal to those who might be willing 
to combine with them. Out of six or seven hundred composing the trade, 
four hundred gave in their names. But capital being wanting, nine of the most 
zealous began the association with all that they possessed ; being a value of 
369 francs in tools, and 135 francs 20 centimes in money. 

" Their good taste, honesty, and punctuality having increased their business, 
they soon numbered 108 members. They received from the State an advance 
of 25,000 francs, reimbursable in 14 years by way of annuity, with interest at 
3f per cent. 

" In 1857 the number of partners is 65, the auxiliaries average 100. All 
the partners vote at the election of a council of eight members, and a manager 
whose name represents the firm. The distribution and superintendence of all 
the works is entrusted to foremen chosen by the manager and council. There 
is a foreman to every 20 or 25 workmen. 

" The payment is by the piece, at rates determined in general assembly. 



PROBABLE FUTURE OF THE LABOURING CLASSES 779 

opposite interest, they are far more scrupulously obeyed, and the 
voluntary obedience carries with it a sense of personal worth and 
dignity. With wonderful rapidity the associated workpeople have 
learnt to correct those of the ideas they set out with which are in 
opposition to the teaching of reason and experience. Almost all 
the associations, at first, excluded piece-work, and gave equal wages 

The earnings vary from 3 to 7 francs a day, according to zeal and ability. The 
average is 50 francs [2Z.] a fortnight, and no one gains much less than 40 francs 
per fortnight, while many earn 80. Some of the carvers and moulders make 
as much as 100 francs, being 200 francs [SI.] a month. Each binds himself to 
work 120 hours per fortnight, equal to ten per day. By the regulations, every 
hour short of the number subjects the delinquent to a penalty of 10 centimes 
[one penny] per hour up to thirty hours, and 15 centimes [1^£?.] beyond. The 
object of this rule was to abolish Saint Monday, and it succeeded in its effort. 
For the last two years the conduct of the members has been so good, that 
fines have fallen into disuse. 

" Though the partners started with only 359 francs, the value of the plant 
(Rue de Chavonne, Cour St. Joseph, Faubourg St. Antoine) already in 1851 
amounted to 5713 francs, and the assets of the; association, debts due to them 
included, to 24,000 francs. Since then the association has become still more 
flourishing, having resisted all the attempts made to impede its progress. It 
does the largest business, and is the most considered, of all the houses in Paris 
in the trade. Its business amounts to 400,000 francs a year." Its inventory 
in December 1855 showed, according to M. Villiaume, a balance of 100,398 
francs 90 centimes in favour of the association, but it possessed, he says, in 
reality, 123,000 francs. 

But the most important association of all is that of the Masons. " The 
Association of Masons was founded August 10th, 1848. Its address is Rue St. 
Victor, 155. Its number of members is 85, and its auxiliaries from three to 
four hundred. There are two managers, one for the building department, the 
other for the pecuniary administration : these are regarded as the ablest master- 
masons in Paris, and are content with a moderate salary. This association has 
lately constructed three or four of the most remarkable mansions in the metro- 
polis. Though it does its work more economically than ordinary contractors, 
yet as it has to give long credits, it is called upon for considerable advances : 
it prospers, however, as is proved by the dividend of 56 per cent which has been 
paid this year on its capital, including in the payment those who have associated 
themselves in its operations. It consists of workmen who bring only their labour, 
of others who bring their labour and a capital of some sort, and of a third class 
who do not work, but contribute capital ^ly. 

" The masons, in the evening, carry on mutual instruction. They, as well 
as the arm-chair makers, give medical attendance at the expense of the association, 
and an allowance to its sick members. They extend their protection over every 
member in every action of his life. The arm-chair makers will soon each possess 
a capital of two or three thousand francs, with which to portion their daughters 
or commence a reserve for future years. Of the masons, some have already 
4000 francs, which are left in the common stock. 

" Before they were associated, these workmen were poorly clad in jackets 
and blouses ; because, for want of forethought, and still more from want of 
work, they had never 60 francs beforehand to buy an overcoat. Most of them 
are now as well dressed as shopkeepers, and sometimes more tastefully. For 
the workman, having always a credit with the association, can get whatever 
he wants by signing an order ; and the association reimburses itself by 



780 BOOK IV. CHAPTER VII. § 6 

whetlier tlie work done was more or less. Almost all have abandoned 
this system, and after allowing to every one a fixed minimum, 
sufficient for subsistence, they apportion all further remuneration 
according to the work done : most of them even dividing the 
profits at the end of the year, in the same proportion as the earnings.* 

fortnightly stoppages, making him save as it were in spite of himself. Some 
workmen who are not in debt to the concern, sign orders payable to themselves 
at five months date, to resist the temptation of needless expense. They are 
put under stoppages of 10 francs per fortnight, and thus at the end of five months 
they have saved the amount." 

The following table, taken by M. Cherbuliez from a work {Die gewerhlichen 
und wirthschaftlichen Genossenschaften der arheitenden Classen in England, 
FrankreicTi und Deutschland), published at Tiibingen in 1860, by Professor 
Huber (one of the most ardent and high-principled apostles of this kind of co- 
operation) shows the rapidly progressive growth in prosperity of the Masons' 
Association up to 1858 : — 

Amount of Profits 

Year business done. realized. 

francs. francs. 

1852 ...... 45,530 .. 1,000 

1853 . 



1854 
1855 
1856 
1857 
1858 



297,208 . . 7,000 

344,240 . . 20,000 

614,694 . . 46,000 

998,240 . . 80,000 

1,330,000 . . 100,000 

1,231,461 . . 130,000 



" Of this last dividend," says M. Cherbuliez, " 30,000 francs were taken for 
the reserve fund, and the remaining 100,000, divided among the shareholders, 
gave to each from 500 to 1500 francs, besides their wages or salaries, and their 
share in the fixed capital of the concern." 

Of the management of the associations generally, M. Villiaume says, " I have 
been able to satisfy myself personally of the ability of the managers and councils 
of the operative associations. The managers are far superior in intelligence, in 
zeal, and even in politeness, to most of the private masters in their respective 
trades. And among the associated workmen, the fatal habit of intemperance 
is gradually disappearing, along with the coarseness and rudeness which are the 
consequence of the too imperfect education of the class." 

* Even the association founded by M. Louis Blanc, that of the tailors of 
C/lichy, after eighteen months' trial af this system, adopted piece-work. One of 
the reasons given by them for abandoning the original system is well worth 
extracting. " Besides the vices I have mentioned, the tailors complained that 
it caused incessant disputes and quarrels, through the interest which each had 
in making his neighbours work. Their mutual watchfulness degenerated into 
a real slavery ; nobody had the free control of his time and his actions. These 
dissensions have disappeared since piece-work was introduced." — Feugueray, 
p. 88. One of the most discreditable indications of a low moral condition given 
of late by part of the English working classes, is the opposition to piece-work. 
When the payment per piece is not sufficiently high, that is a just ground of 
objection. But dislike to piece-work in itself, except under mistaken notions, 
must be dislike to justice and fairness ; a desire to cheat, by not giving work in 
proportion to pay. Piece-work is the perfection of contract ; and contract, in 
all work, and in the most minute detail — the principle of so much pay for so 



PROBABLE FUTURE OF THE LABOURING CLASSES 781 

It is the declared principle of most of these associations that they 
do not exist for the mere private benefit of the individual members, 
but for the promotion of the co-operative cause. With every 
extension, therefore, of their business, they take in additional 
members, not (when they remain faithful to their original plan) to 
receive wages from them as hired labourers, but to enter at once 
into the full benefits of the association, without being required to 
bring anything in, except their labour : the only condition imposed 
is that of receiving during a few years a smaller share in the annual 
division of profits, as some equivalent for the sacrifices of the founders. 
When members quit the association, which they are always at 
liberty to do, they carry none of the capital with them : it remains 
an indivisible property, of which the members for the time being 
have the use, but not the arbitrary disposal : by the stipulations of 
most of the contracts, even if the association breaks up, the capital 
cannot be divided, but must be devoted entire to some work of 
beneficence or of public utility. A fixed, and generally a consider- 
able, proportion of the annual profits, is not shared among the 
members, but added to the capital of the association, or devoted to 
the repayment of advances previously made to it : another portion 
is set aside to provide for the sick and disabled, and another to form 
a fund for extending the practice of association, or aiding other 
associations in their need. The managers are paid, Hke other 
members, for the time which is occupied in management, usually at 
the rate of the highest paid labour : but the rule is adhered to, that 
the exercise of power shall never be an occasion for profit. 

-Of the ability of the associations to compete successfully with 
individual capitalists, even at an early period of their existence, 
M. Feugueray said, " The associations which have been founded 
in the last two years " (M. Feugueray wrote in 1851) " had many 
obstacles to overcome ; the majority of them were almost entirely 
without capital : all were treading in a path previously unexplored ; 
they ran the risks which always threaten innovators and beginners. 
Nevertheless, in many of the trades in which they have been estab- 
lished, they are already formidable competitors of the old houses, and 
are even complained of on that account by a part of the bourgeoisie. 
This is not only true of the cooks, the lemonade sellers, and haiir 

mucli service, carried out to tlie utmost extremity — ^is tlie system, of all others, 
in the present state of society and degree of civiHzation, most favourable to the 
worker ; though most unfavourable to the non- worker who wishes to be paid for 
being idle, 



782 \ BOOK IV. CHAPTER VII. § 6 

dressers, trades tlie nature of wliicli enables tlie associations to rely 
on democratic custom, but also in otber trades where they have not 
the same advantages. One has only to consult the makers of chairs, 
of arm-chairs, of files, and one will learn from them if the most 
important establishments in their respective trades are not those 
of the associated workmen." 

1 The vitality of th^se associations must indeed be great, to have 
enabled about twenty of them to survive not only the anti-socialist 
reaction, which for the time discredited all attempts to enable 
workpeople to be their own employers — not only the tracasseries of 
the police, and the hostile policy of the government since the usur- 
pation — but in addition to these obstacles, all the difficulties arising 
from the trying condition of financial and commercial affairs from 
1854 to 1858. Of the prosperity attained by some of them even 
while passing through this difficult period, I have given examples 
which must be conclusive to all minds as to the brilliant future 
reserved for the principle of co-operation.* 

^ [This paragraph dates from the 5th ed. (1862), and replaced the following 
passages of the 3rd (1852) : " It is painful to think that these bodies, formed by 
the heroism and maintained by the public spirit and good sense of the working 
people of Paris, are in danger of being involved in the same ruin with every- 
thing free, popular, or tending to improvement in French institutions. The 
unprincipled adventurer who has for the present succeeded in reducing France 
to the political condition of Russia, knows that two or three persons cannot 
meet together to discuss, though it be only the affairs of a workshop, without 
danger to his power. He has therefore already suppressed most of the pro- 
vincial associations, and many of those of Paris, and the remainder, instead of 
waiting to be dissolved by despotism, are, it is said, preparing to emigrate. 
Before this calamity overtook France, the associations could be spoken of not 
with the hope merely, but with positive evidence, of their being able to compete 
successfully with individual capitalists. ' The associations,' says M. Feugue- 
ray," &c,, as in the present text, supra, p. 781. 

" Though the existing associations may be dissolved, or driven to expatriate, 
their experience will not be lost. They have existed long enough to furnish the 
type of future improvement : they have exempHfied the process for bringing 
about a change in society, which would combine the freedom and independence 
of the individual," &c., as in the present text, infra, p. 791. 

To the 4th ed. (1857) was added this note : " It appears however from subse- 
quent accounts that in 1854 twenty-five associations still existed in Paris and 
several in the provinces, and that many of these were in a most flourishing con- 
dition. This number is exclusive of Co-operative Stores, which have greatly 
multiplied, especially in the South of France, and are not understood to be 
discouraged by the Government."] 

* [1865] In the last few years the co-operative movement among the French 
working classes has taken a fresh start. An interesting account of the Provi- 
sion Association (Association Alimentaire) of Grenoble has been given in a 
pamphlet by M. Casimir Perier {Les Societis de Go-opiration) ; and in the 
Times of November 24, 1864, we read the following passage : — " While a 
pertain number of operatives stand out for more wages, or fewer hours of 



PROBABLE FUTURE OF THE LABOURING CLASSES 18Z 

^ It is not in France alone that these associations have commenced 
a career of prosperity. To say nothing at present of Germany, 
Piedmont, and Switzerland (where the Konsum-Verein of Ziirich 
is one of the most prosperous co-operative associations in Europe), 
England can produce cases of success rivalling even those which I 
-have cited from France. Under the impulse commenced by Mr. 
Owen, and more recently propagated by the writings and personal 
efforts of a band of friends, chiefly clergymen and barristers, to whose 
noble exertions too much praise can scarcely be given, the good 
seed was widely sown ; the necessary alterations in the English 
law of partnership were obtained from Parliament, on the benevolent 
and public-spirited initiative of Mr. Slaney ; many industrial 
associations, and a still greater number of co-operative stores for 
retail purchases, were founded. Among these are already many 
instances of remarkable prosperity, the most signal of which are the 

labour, others, who have also seceded, have associated for the purpose of 
carrying on their respective trades on their own account, and have collected 
funds for the purchase of instruments of labour. They have founded a society, 
* Societe Generale d'Approvisionnement et de Consommation.' It numbers 
between 300 and 400 members, who have already opened a ' co-operative 
store ' at Passy, which is now within the limits of Paris. They calculate that 
by May next, fifteen new self-supporting associations of the same kind will be 
ready to commence operations ; so that the number will be for Paris alone 
from 50 to 60." 

^ [This paragraph and the subsequent account of the Rochdale Pioneers 
date from the 5th ed. (1862), though the reference to the Zurich society and to 
Mr. Plummer in the footnote were added in the 6th ed. (1865). From the 4th 
(1857) disappeared the following footnote : 

*' Though this beneficent movement has been so seriously checked in the 
country in which it originated, it is rapidly spreading in those other countries 
which have acquired, and still retain, any political freedom. It forms already 
an important feature in the social improvement which is proceeding at a most 
rapid pace in Piedmont. In England also, under the impulse given by the 
writings and personal exertions of a band of friends, chiefly clergymen and 
barristers, the movement has made some progress. On the 15th of February, 
1856, there had been registered under the Industrial and Provident Societies' 
Act, thirty- three associations, seventeen of which were industrial societies, the 
remainder being associations for co-operative consumption only : without 
reckoning Scotland, where, also, these associations were rapidly spreading. It 
is beUeved that all such societies are now registered under the Limited 
Liabilities Act. From later information it appears that the productive associa- 
tions (excluding the flour mills, which partake more of the nature of stores) 
have fallen off in number since their first start ; and their progress, in tho 
present moral condition of the bulk of the population, cannot possibly be rapid. 
But those which subsist, continue to do as much business as they ever did : 
and there are in the North of England instances of brilUant and steadily 
progressive success. Co-operative stores are increasing both in number and 
prosperity, especially in the North ; and they are the best preparation for a 
wider appHcation of the principle."] 



784 BOOK IV. CHAPTER VII. § 6 

Leeds Flour Mill, and the Roclidale Society of Equitable Pioneers. 
Of this last association, the most successful of all, the history has 
been written in a very interesting manner by Mr. Holyoake ;* and 
the notoriety which by this and other means has been given to 
facts so encouraging, is causing a rapid extension of associations with 
similar objects in Lancashire, Yorkshire, London, and elsewhere. 

.The original capital of the Rochdale Society consisted of 281., 
brought together by the unassisted economy of about forty labourers, 
through the slow process of a subscription of twopence (afterwards 
raised to threepence) per week. With this sum they estabhshed in 
1844 a small shop, or store, for the supply of a few common articles 
for the consumption of their own famihes. As their carefulness 
and honesty brought them an increase of customers and of subscribers, 
they extended their operations to a greater number of articles of 
consumption, and in a few years were able to make a large investment 
in shares of a Co-operative Corn Mill. Mr. Holyoake thus relates the 
stages of their progress up to 1857 : — 

" The Equitable Pioneers' Society is divided into seven depart- 
ments : Grocery, Drapery, Butchering, Shoemaking, Clogging, 
Tailoring, Wholesale. 

" A separate account is kept of each business, and a general 
account is given each quarter, showing the position of the whole. 

" The grocery business was commenced, as we have related, in 
December 1844, with only four articles to sell. It now includes what- 
ever a grocer's shop should include. 

" The drapery business was started in 1847, with an humble 
array of attractions. In 1854 it was erected into a separate depart- 
ment. 

" A year earlier, 1846, the Store began to sell butcher's meat, 
buying eighty or one hundred pounds of a tradesman in the town. 
After a while the sales were discontinued until 1850, when the 
Society had a warehouse of its own. Mr. John Moorhouse, who 
has now two assistants, buys and kills for the Society three oxen, 
eight sheep, sundry porkers and calves, which are on the average 
converted into 130?. of cash per week. 

" Shoemaking commenced in 1852. Three men and an apprentice 
make, and a stock is kept on sale. 

* Self-help by the Peoples-History of Co-operation in Bochd-ale. An instructive 
account of this and other co-operative associations has also been written in the 
Companion to the Almanack for 1862, by Mr. John Plummer, of Kettering; 
himself one of the most inspiring examples of mental cultivation and high 
principle in a self -instructed working man. 



PROBABLE FUTURE OF THE LABOURING CLASSES 785 

" Clogging and tailoring commenced also in this year. • 

" The wholesale department commenced in 1852, and marks an 
important development of the Pioneers' proceedings. This depart- 
ment has been created for supplying any members requiring large 
quantities, and with a view to supply the co-operative stores of 
Lancashire and Yorkshire, whose small capitals do not enable them 
to buy in the best markets, nor command the services of what is 
otherwise indispensable to every store — a good buyer, who knows the 
markets and his business, who knows what, how, and where to buy. 
The wholesale department guarantees purity, quaUty, fair prices, 
standard weight and measure, but all on the never-failing principle, 
cash payment." 

In consequence of the number of members who now reside at a 
distance, and the difficulty of serving the great increase of customers, 
" Branch Stores have been opened. In 1856 the first Branch was 
opened in the Oldham Road, about a mile from the centre of Roch- 
dale. In 1857 the Castleton Branch, and another in the Whitworth 
Road, were estabhshed, and a fourth Branch in Pinfold." 

The warehouse, of which their original Store was a single apart- 
ment, was taken on lease by the Society, very much out of repair, 
in 1849. " Every part has undergone neat refitting and modest 
decoration, and now wears the air of a thoroughly respectable place 
of business. One room is now handsomely fitted up as a news 

room. Another is neatly fitted up as a Hbrary Their news 

room is as well suppHed as that of a London club." It is now 
" free to members, and supported from the Education Fund," a 
fund consisting of 2J per cent of all the profits divided, which is set 
apart for educational purposes. " The Library contains 2200 
volumes of the best, and among them, many of the most expensive 
books pubhshed. The Library is free. From 1850 to 1855, a school 
for young persons was conducted at a charge of twopence per 
month. Since 1855, a room has been granted by the Board for the 
use of from twenty to thirty persons, from the ages of fourteen to 
forty, for mutual instruction on Sundays and Tuesdays. . . . 

" The corn-mill was of course rented, and stood at Small Bridge, 
some distance from the town — one mile and a half. The Society 
have since built in the town an entirely new mill for themselves. 
The engine and the machinery are of the most substantial and 
improved kind. The capital invested in the corn-mill is 8450Z., of 
which 3731?. 15s. 2d. is subscribed by the Equitable Pioneers' 
Society. The corn-mill employs eleven men." 



786 BOOK IV. CHAPTER VII. § 6 

At a later period they extended their operations to the staple 
manufacture itself. From the success of the Pioneers' Society 
grew not only the co-operative corn-mill, but a co-operative associa- 
tion for cotton and woollen manufacturing. " The capital in this 
department is 4000Z., of which sum 2042Z. has been subscribed by 
the Equitable Pioneers' Society. This Manufacturing Society has 
ninety-six power-looms at work, and employs twenty-six men, seven 
women, four boys, and five girls — in all forty-two persons. . . ." 

" In 1853 the Store purchased for 745?., a warehouse (freehold) 
on the opposite side of the street, where they keep and retail their 
stores of flour, butcher's meat, potatoes, and kindred articles. Their 
committee-rooms and offices are fitted up in the same building. 
They rent other houses adjoining for cahco and hosiery and shoe 
stores. In their wilderness of rooms, the visitor stumbles upon 
shoemakers and tailors at work under healthy conditions, and in 
perfect peace of mind as to the result on Saturday night. Their 
warehouses are everywhere as bountifully stocked as Noah's Ark, 
and cheerful customers literally crowd Toad Lane at night, swarming 
like bees to every counter. The industrial districts of England 
liave not such another sight as the Eochdale Co-operative Store on 
Saturday night," * Since the disgraceful failure of the Rochdale 

* " But it is not," adds Mr. Holyoake, " the brilliancy of commercial activity 
in which either writer or reader will take the deepest interest ; it is in the new 
and improved spirit animating this intercourse of trade. Buyer and seller 
meet as friends ; there is no overreaching on one side, and no suspicion on the 

other These crowds of humble working men, who never knew before 

when they put good food in their mouths, whose every dinner was adulterated, 
whose shoes let in the water a month too soon, whose waistcoats shone with 
devil's dust, and whose wives wore calico that would not wash, now buy in the 
markets like millionaires, and as far as pureness of food goes, live like lords." 
Far better, probably, in that particular ; for assuredly lords are not the cus 
tomers least cheated in the present race of dishonest competition. " They 
are weaving their own stuffs, making their own shoes, sewing their own garments, 
and grinding their own corn. They buy the purest sugar and the best tea, 
and grind their own coffee. They slaughter their own cattle, and the finest 
beasts of the land waddle down the streets of Rochdale for the consumption 
of flannel weavers and cobblers. (Last year the Society advertised for a Pro- 
vision Agent to make purchases in Ireland, and to devote his whole time to 
that duty.) When did competition give poor men these advantages ? And 
will any man say that the moral character of these people is not improved 
under these influences ? The teetotallers of Rochdale acknowledge that the 
Store has made more sober men since it commenced than all their efforts have 
Deen able to make in the same time. Husbands who never knew what it was 
to be out of debt, and poor wives who during forty years never had sixpence 
uncondemned in their pockets, now possess little stores of money sufficient to 
build them cottages, and go every week into their own market with money 
jingling in their pockets ; and in that market there is no distrust and no 
deception ; there is no adulteration, and no second prices. The whole 



PROBABLE FUTURE OF THE LABOURING CLASSES 787 

Savings Bank in 1849, the Society's Store lias become tlie virtual 
Savings Bank of the place. 

The following Table, completed to 1860 from the Almanack 
published by the Society, shows the pecuniary result of its operations 
from the commencement. 



Year. 


No. of 
members. 


Amount of Cepital. 


Amount of cash sales 
in store (annual). 


Amount of profit 
(annual). 






£ 


s. d. 


£ s. 


d. 


£ s. d. 


1844 


28 


28 











1845 


74 


181 


12 5 


710 6 


5 


32 17 6 


1846 


86 


252 


7 U 


1,146 17 


7 


80 16 3i 


1847 


110 


286 


5 3| 


1,924 13 


10 


72 2 10 


1848 


140 


397 





2,276 6 


H 


117 16 10| 


1849 


390 


1,193 


19 1 


6,611 18 





561 3 9 


1850 


600 


2,299 


10 5 


13,179 17 





889 12 5 


1851 


630 


2,785 


11 


17,638 4 





990 19 81 


1852 


680 


3,471 


6 


16,352 5 





1,206 15 2^ 


1853 


720 


5,848 


3 11 


22,760 





1,674 18 11^ 


1854 


900 


7,172 


15 7 


33,364 





1,763 11 21 


1855 


1400 


11,032 


12 10| 


44,902 12 





3,106 8 4| 


1856 


1600 


12,920 


13 IJ 


63,197 10 





3,921 13 11 


1857 


1850 


15,142 


1 2 


79,788 





5,470 6 81- 


1858 


1950 


18,160 


5 4 


71,689 





6,284 17 4} 


1859 


2703 


27,060 


14 2 


104,012 





10,739 18 6| 


1860* 


3450 


37,710 


9 


152,063 





15,906 9 11 



atmosphere is honest. Those who serve neither hurry, finesse, nor flatter. Thet/ 
have no interest in chicanery. They have but one duty to perform — that of 
giving fair measure, full weight, and a pure article. In other parts of the 
town, where competition is the principle of trade, all the preaching in Rochdale 
cannot produce moral effects like these. 

" As the Store has made no debts, it has incurred no losses ; and during 
thirteen years' transactions, and receipts amounting to 303,852?., it has had 
no law-suits. The Arbitrators of the Societies, during all their years of office, 
have never had a case to decide, and are discontented that nobody quarrels." 

* [1865] The latest report to which I have access is that for the quarter 
ending September 20, 1864, of which I take the following abstract from the 
November number of that valuable periodical the Co-operator, conducted by 
Mr. Henry Pitman, one of the most active and judicious apostles of the Co- 
operative cause : — " The number of members is 4580, being an increase of 132 
for the three months. The capital or assets of the society is 59,536Z. lOs. Id., 
or more than last quarter by 3687?. 135. Id. The cash received for sale of 
goods is 45,806?. Os. lO^d., being an increase of 2283?. 125. 5^d. as compared 
with the previous three months. The profit realized is 5713?. 2s. 7|c?., which, 
after depreciating fixed stock account 182?. 25. 4^d., paying interest on share 
capital 598?. 175. 6c?., applying 2|- per cent to an educational fund, viz. 
122?. 175. 9d., leaves a dividend to members on their purchases of 25. 4c?. in the 
pound. Non- members have received 261?. I85. 4c?., at I5. 8c?. in the pound on 
tjieir purchases, leaving 8c?. in the pound profit to the soqiety, which increases 



788 BOOK IV. CHAPTER VII. § 6 

I need not enter into similar particulars respecting tlie Corn-Mill 
Society, and will merely state that in 1860 its capital is set down, 
on the same authority, at 26,618Z. lis. 6d., and the profit for that 
single year at 10,164L 125. M. Tor the manufacturing establish- 
ment I have no certified information later than that of Mr. Holyoake, 
who states the capital of the concern, in 1857, to be 5500Z. But 
a letter in the RocMale Observer of May 26, 1860, editorially 
announced as by a person of good information, says that the capital 
had at that time reached 50,00 Oi. : and the same letter gives highly 
satisfactory statements respecting other similar associations ; the 
Eosendale Industrial Company, capital 40,000L ; the Walsden 
Co-operative Company, capital 8000L ; the Bacup and Wardle 
Commercial Company, with a capital of 40,000L, " of which more 
than one-third is borrowed at 5 per cent, and this circumstance, 
during the last two years of unexampled commercial prosperity, 
has caused the rate of dividend to shareholders to rise to an almost 
fabulous height." 

1 It is not necessary to enter into any details respecting the 
subsequent history of English Co-operation ; the less so, as it is 
now one of the recognised elements in the progressive movement 
of the age, and, as such, has latterly been the subject of elaborate 
articles in most of our leading periodicals, one of the most recent 
and best of which was in the Edinhurgh Review for October 1864 : 
and the progress of Co operation from month to month is regularly 
chronicled in the Co-oferator, I must not, however, omit to 
mention the last great step in advance in reference to the Co- 
operative Stores, the formation in the North of England (and another 
is in course of formation in London) of a Wholesale Society, to 
dispense with the services of the wholesale merchant as well as of the 
retail dealer, and extend to the Societies the advantage which each 
society gives to its own members, by an agency for co-operative 
purchases, of foreign as well as domestic commodities, direct from 
the producers. 

2 It is hardly possible to take any but a hopeful view of the 

the reserve fund 104?. 155. 4cf. This fund now stands at 1352Z. 75. \\\d., the 
accumulation of profits from the trade of the public with the store since Sep- 
tember 1862, over and above the \s. 8d. in the pound allowed to such purchasers." 

* [This paragraph added in 6th ed. (1865).] 

2 [This paragraph is from the 5th ed. (1862), and so is the explanation, in the 
next paragraph but one, of the increase in the productiveness of industry. 
The argument as to the limitation of the number of distributors was inserted 
in the 6th ed. (1865).] 



PROBABLE FUTURE OF THE LABOURING CLASSES 789 

prospects of mankind, when, in two leading countries of the world, 
the obscure depths of society contain simple working men whose 
integrity, good sense, self-command, and honourable confidence in 
one another, have enabled them to carry these noble experiments 
to the triumphant issue which the facts recorded in the preceding 
pages attest. 

From the progressive advance of the co-operative movement, 
a great increase may be looked for even in the aggregate productive- 
ness of industry. The sources of the increase are twofold. In the 
first place, the class of mere distributors, who are not producers 
but auxiharies of production, and whose inordinate numbers, far 
more than the gains of capitalists, are the cause why so great a 
portion of the wealth produced does not reach the producers — will 
be reduced to more modest dimensions. Distributors differ from 
producers in this, that when producers increase, even though in 
any given department of industry they may be too numerous, they 
actually produce more : but the multiplication of distributors does 
not make more distribution to be done, more wealth to be dis- 
tributed ; it does but divide the same work among a greater number 
of persons, seldom even cheapening the process. By limiting the 
distributors to the number really required for making the com- 
modities accessible to the consumers — which is the direct effect of 
the co-operative system — a vast number of hands will be set free 
for production, and the capital which feeds and the gains which 
remunerate them will be apphed to feed and remunerate producers. 
This great economy of the world's resources would be reaHzed even 
if co-operation stopped at associations for purchase and consumption, 
without extending to production. 

The other mode in which co-operation tends, still more efficaci- 
ously, to increase the productiveness of labour, consists in the vast 
stimulus given to productive energies, by placing the labourers, as 
a mass, in a relation to their work which would make it their principle 
and their interest — at present it is neither — to do the utmost, instead 
of the least possible, in exchange for their remuneration. ^It is 
scarcely possible to rate too highly this material benefit, which yet 
is as nothing compared with the moral revolution in society that 
would accompany it : the healing of the standing feud between 
capital and labour ; the transformation of human fife, from a 
conflict of classes struggling for opposite interests, to a friendly 

' [The present text from this point to the point indicated in the next 
paragraph but two dates from the 6th ed. (1865).] 



790 BOOK IV. CHAPTER VII. § 6 

rivalry in the pursuit of a good common to all ; the elevation of 
the dignity of labour ; a new sense of security and independence 
in the labouring class ; and the conversion of each human beiag's 
daily occupation into a school of the social sympathies and the 
practical intelligence. 

Such is the noble idea which the promoters of Co-operation 
should have before them. But to attain, in any degree, these objects, 
it is indispensable that all, and not some only, of those who do the 
work should be identified in interest with the prosperity of the 
undertaking. Associations which, when they have been successful, 
renounce the essential principle of the system, and become joint- 
stock companies of a limited number of shareholders, who differ 
from those of other companies only in being working men ; associ- 

^ ations which employ hired labourers without any interests in the 
profits (and I grieve to say that the manufacturing Society even of 

^ Kochdale has thus degenerated) are, no doubt, exercising a lawful 
right in honestly employing the existing system of society to improve 

'' their position as individuals, but it is not from them that anything 
need be expected towards replacing that system by a better. Neither 
will such societies, in the long run, succeed in keeping their ground 
against individual competition. Individual management, by the 
f^one person principally interested, has great advantages over every 
V description of collective management. Co-operation has but one 
thing to oppose to those advantages — the common interest of all 
the workers in the work. When individual capitalists, as they 
will certainly do, add this to their other points of advantage ; 
when, even if only to increase their gains, they take up the practice 
which these co-operative societies have dropped, and connect the 
pecuniary interest of every person in their employment with the 
most efficient and most economical management of the concern ; 
they are likely to gain an easy victory over societies which retain 
the defects, while they cannot possess the full advantages, of the 
old system. \\ 

Under the most favourable supposition, it will be desirable, and 
perhaps for a considerable length of time, that individual capitalists, 
associating their work-people in the profits, should coexist with 
even those co-operative societies which are faithful to the co- 
operative principle. Unity of authority makes many things possible, 
which could not or would not be undertaken subject to the chance 
of divided councils or changes in the management. A private 
papitalist, exempt from the control of a bod^, if he is a person of 



PKOBABLE FUTURE OF THE LABOURING CLASSES 791 

capacity, is considerably more likely than almost any association 
to run judicious risks, and originate costly improvements. Co- 
operative societies may be depended on for adopting improvements 
after they have been tested by success, but individuals are more 
likely to commence things previously untried. Even in ordinary 
business, the competition of capable persons who in the event of 
failure are to have all the loss, and in case of success the greater 
part of the gain, will be very useful in keeping the managers of 
co-operative societies up to the due pitch of activity and vigilance. 
When, however, co-operative societies shall have sufficiently 
multipHed, it is not probable that any but the least valuable work- 
people will any longer consent to work all their lives for wages 
merely ; both private capitaUsts and associations will gradually 
find it necessary to make the entire body of labourers participants 
in profits. Eventually, and in perhaps a less remote future than 
may be supposed, we may, through the co-operative principle, see 
our way to ^ a change in society, which would combine the freedom 
and independence of the individual, with the moral, intellectual, and 
economical advantages of aggregate production ; and which, without 
violence or spoliation, or even any sudden disturbance of existing 
habits and expectations, would reahze, at least in the industrial 
department, the best aspirations of the democratic spirit, by putting 
an end to the division of society into the industrious and the idle, 
and effacing all social distinctions but those fairly earned by personal 
services and exertions. Associations Hke those which we have des- 
cribed, by the very process of their success, are a course of education 
in those moral and active quahties by which alone success can be 
either deserved or attained. As associations multipHed, they would 
tend more and more to absorb all work-people, except those who 
have too little understanding, or too little virtue, to be capable of 
learning to act on any other system than that of narrow selfishness. 
As this change proceeded, owners of capital would gradually find 
it to their advantage, instead of maintaining the struggle of the 
old system with work-people of only the worst description, to lend 
their capital to the associations ; to do this at a diminishing rate 
of interest, and at last, perhaps, even to exchange their capital 
for terminable annuities. In this or some such mode, the existing 
accumulations of capital might honestly, and by a kind of spon- 
taneous process, become in the end the joint property of all who 
participate in their productive employment : a transformation 

^ [The rest of this paragraph dates from the 3rd ed. (1852).] 



* 79^ BOOK IV. CHAPTEK VII. § 7 

which, thus effected, (and assuming of course that both sexes 
participate equally in the rights and in the government of the 
association,)* would be the nearest approach to social justice, and the 
most beneficial ordering of industrial affairs for the universal good, 
which it is possible at present to foresee. 

1 § 7. I agree, then, with the Sociahst writers in their conception 
of the form which industrial operations tend to assume in the 
advance of improvement ; and I entirely share their opinion that 
\ the time is ripe for commencing this transformation, and that it 
should by all just and effectual means be aided and encouraged. 
But while I agree and sympathize with Socialists in this practical 
portion of their aims, I utterly dissent from the most conspicuous 
and vehement part of their teaching, their declamations against 
competition. With moral conceptions in many respects far ahead 
of the existing arrangements of society, they have in general very 
confused and erroneous notions of its actual working ; and one of 
their greatest errors, as I conceive, is to charge upon competition 
all the economical evils which at present exist. They forget that 
wherever competition is not, monopoly is ; and that monopoly, 
in all its forms, is the taxation of the industrious for the support 
of indolence, if not of plunder. They forget, too, that with the 
exception of competition among labourers, all other competition 
is for the benefit of the labourers, by cheapening the articles they 
consume ; that competition even in the labour market is a source 
not of low but of high wages, wherever the competition /or labour 
exceeds the competition of labour, as in America, in the colonies, 
and in the skilled trades ; and never could be a cause of low wages, 
save by the overstocking of the labour market through the too 
great numbers of the labourers' families ; while, if the supply of 
labourers is excessive, not even Socialism can prevent their remunera- 
tion from being low. Besides, if association were universal, there 

* [1865] In this respect also the Rochdale Society has given an example of 
reason and justice, worthy of the good sense and good feeUng manifested in 
their general proceedings. " The Eochdale Store," says Mr. Holyoake, "render* 
incidental but valuable aid towards realizing the civil independence of women. 
Women may be members of this Store, and vote in its proceedings. Single 
and married women join. Many married women become members because 
their husbands will not take the trouble, and others join it in self-defence to 
prevent the husband from spending their money in drink. The husband 
cannot withdraw the savings at the Store standing in the wife's name unless 
she signs the order." 

1 [This section added in 3rd ed. (1852).] 



raOBABLE hVTVKE OF THE LABOURING CLASSES 793 

would be no competition between labourer and labourer ; and tbat 
between association and association would be for the benefit of the 
consumers, that is, of the associations ; of the industrious classes 
generally. 

I do not pretend that there are no inconveniences in competition, 
or that the moral objections urged against it by SociaKst writers, as 
a source of jealousy and hostility among those engaged in the same 
occupation, are altogether groundless. But if competition has its 
evils, it prevents greater evils. As M. Feugueray well says,* " The 
deepest root of the evils and iniquities which fill the industrial 
world, is not competition, but the subjection of labour to capital, 
and the enormous share which the possessors of the instruments 
of industry are able to take from the produce. ... If competition 
has great power for evil, it is no less fertile of good, especially in 
what regards the development of the individual faculties, and the 
success of innovations." It is the common error of SociaHsts to 
overlook the natural indolence of mankind ; their tendency to be 
passive, to be the slaves of habit, to persist indefinitely in a course 
once chosen. Let them once attain any state of existence which 
they consider tolerable, and the danger to be apprehended is that 
they will thenceforth stagnate ; will not exert themselves to improve, 
and by letting their faculties rust, will lose even the energy required 
to preserve them from deterioration. Competition may not be the 
best conceivable stimulus, but it is at present a necessary one, and 
no one can foresee the time when it will not be indispensable to 
progress. Even confining ourselves to the industrial department, 
in which, more than in any other, 'the majority may be supposed to 
be competent judges of improvements ; it would be difficult to 
induce the general assembly of an association to submit to the 
trouble and inconvenience of altering their habits by adopting some 
new and promising invention, unless their knowledge of the existence 
of rival associations made them apprehend that what they would 
not consent to do, others would, and that they would be left behind 
in the race. 

Instead of looking upon competition as the baneful and anti- 
social principle which it is held to be by the generahty of SociaHsts, 
I conceive that, even in the present state of society and industry, 
every restriction of it is an evil, and every extension of it, even if 
for the time injuriously affecting some class of labourers, is always 
an ultimate good. To be protected against competition is to be 

* P. 90. 



794 BOOK IV. CHAPTER VII. § 7 

protected in idleness, in mental dulness ; to be saved tlie necessity 
of being as active and as intelligent as other people ; and if it is 
also to be protected against being underbid for employment by a 
less higbly paid class of labourers, this is only where old custom, or 
local and partial monopoly, has placed some particular class of 
artizans in a privileged position as compared with the rest ; and the 
time has come when the interest of universal improvement is no 
longer promoted by prolonging the privileges of a few. If the slop- 
sellers and others ^ of their class have lowered the wages of tailors, 
and some other artizans, by making them an affair of competition 
instead of custom, so much the better in the end. What is now 
required is not to bolster up old customs, whereby limited classes of 
labouring people obtain partial gains which interest them in keeping 
up the present organization of society, but to introduce new general 
practices beneficial to all ; and there is reason to rejoice at whatever 
makes the privileged classes of skilled artizans feel that they have 
the same interests, and depend for their remuneration on the same 
general causes, and must resort for the improvement of their condition 
to the same remedies, as the less fortunately circumstanced and 
comparatively helpless multitude.^ 

' [" Of their class " was inserted in 4th ed. (1857) ; and the words of the 
3rd ed. (1852), " so unjustly and illiberally railed at — as if they were one 
iota worse in their motives or practices than other people, in the existing state 
of society, — " were omitted.] 

2 [See Appendix DD. The Subsequent History of Co-operation.] 



BOOK V 
ON THE INFLUENCE OF GOVERNMENT 

CHAPTER I 

OF THE FUNCTIONS OF GOVERNMENT IN GENERAL 

§ 1. One of the most disputed questions both in pohtical 
science and in practical statesmanship at this particular period 
relates to the proper limits of the functions and agency of govern- 
ments. At other times it has been a subject of controversy how 
governments should be constituted, and according to what principles 
and rules they should exercise their authority ; but it is now almost 
equally a question to what departments of human affairs that 
authority should extend. And when the tide sets so strongly towards 
changes in government and legislation, as a means of improving the 
condition of mankind, this discussion is more hkely to increase 
than to diminish in interest. On the one hand, impatient reformers, 
thinking it easier and shorter to get possession of the government 
than of the intellects and dispositions of the pubHc, are under a 
constant temptation to stretch the province of government beyond 
due bounds : while, on the other, mankind have been so much 
accustomed by their rulers to interference for purposes other than 
the public good, or under an erroneous conception of what that good 
requires, and so many rash proposals are made by sincere lovers 
of improvement, for attempting, by compulsory regulation, the 
attainment of objects which can only be effectually or only usefully 
compassed by opinion and discussion, that there has grown up a 
spirit of resistance in limine to the interference of government, 
merely as such, and a disposition to restrict its sphere of action 
within the narrowest bounds. From differences in the historical 



796 BOOK V. CHAPTER I. § 2 

development of different nations, not necessary to be here dwelt 
upon, tlie former excess, tliat of exaggeraing the province of govern- 
ment, prevails most, both in theory and in practice, among the 
Continental nations, while in England the contrary spirit has hitherto 
been predominant. 

The general principles of the question, in so far as it is a question 
of principle, I shall make an attempt to determine in a later chapter 
of this Book : after first considering the effects produced by the 
conduct of government in the exercise of the functions universally 
acknowledged to belong to it. For this purpose, there must be a 
specification of the functions which are either inseparable from the 
idea of a government, or are exercised habitually and without 
objection by all governments ; as distinguished from those respecting 
which it has been considered questionable whether governments 
should exercise them or not. The former may be termed the 
necessary J the latter the o^ptional, functions of government. ^ By the 
term optional it is not meant to imply that it can ever be a matter 
of indifference, or of arbitrary choice, whether the government 
should or should not take upon itself the functions in question ; 
but only that the expediency of its exercising them does not amount 
to necessity, and is a subject on which diversity of opinion does or 
may exist. 

§ 2. In attempting to enumerate the necessary functions of 
government, we find them to be considerably more multifarious 
than most people are at first aware of, and not capable of being 
circumscribed by those very definite fines of demarcation, which, 
in the inconsiderateness of popular discussion, it is often attempted 
to draw round them. We sometimes, for example, hear it said that 
governments ought to confine themselves to affording protection 
against force and fraud : that, these two things apart, people should 
be free agents, able to take care of themselves, and that so long as 
a person practises no violence or deception, to the injury of others 
in person or property, ^ legislatures and governments are in no way 
called on to concern themselves about him. But why should 
people be protected by their government, that is, by their own 
collective strength, against violence and fraud, and not against 
other evils, except that the expediency is more obvious ? If nothing 

^ [This explanation added in 2nd ed. (1849).] 

2 [So since the 4th ed. (1857). The original text ran: " he has a claim 
to do as he likes, without being molested or restricted by judges and legislators." 



FUNCTIONS OF GOVERNMENT IN GENERAL 797 

but what people cannot possibly do for themselves, can be fit to be 
done for them by government, people might be required to protect 
themselves by their skill and courage even against force, or to beg 
or buy protection against it, as they actually do where the govern- 
ment is not capable of protecting them : and against fraud every 
one has the protection of his own wits. But without further antici- 
pating the discussion of principles, it is sufficient on the present 
occasion to consider facts. 

Under which of these heads, the repression of force or of fraud, 
are we to place the operation, for example, of the laws of inheritance ? 
Some such laws must exist in all societies. It may be said, perhaps, 
that in this matter government has merely to give effect to the 
disposition which an individual makes of his own property by will. 
This, however, is at least extremely disputable ; there is probably 
no country by whose laws the power of testamentary disposition is 
perfectly absolute. And suppose the very common case of there 
being no will : does not the law, that is, the government, decide on 
principles of general expediency, who shall take the succession ? 
and in case the successor is in any manner incompetent, does it not 
appoint persons, frequently officers of its own, to collect the property 
and apply it to his benefit ? There are many other cases in which 
the government undertakes the administration of property, because 
the pubHc interest, or perhaps only that of the particular persons 
concerned, is thought to require it. This is often done in cases of 
litigated property ; and in cases of judicially declared insolvency. 
It has never been contended that, in doing these things, a government 
exceeds its province. 

Nor is the function of the law in defining property itself so 
simple a thing as may be supposed. It may be imagined, perhaps, 
that the law has only to declare and protect the right of every one 
to what he has himself produced, or acquired by the voluntary 
consent, fairly obtained, of those who produced it. But is there 
nothing recognized as property except what has been produced ? 
Is there not the earth itself, its forests and waters, and all other 
natural riches, above and below the surface ? These are the inherit- 
ance of the human race, and there must be regulations for the 
common enjoyment of it. What rights, and under what conditions, 
a person shall be allowed to exercise over any portion of this common 
inheritance cannot be left undecided. No function of government 
is less optional than the regulation of these things, or more com- 
pletely involved in the idea of civihzed society. 



793 BOOK V. CHAPTER I. § 2 

Again, the legitimacy is conceded of repressing violence or 
treachery ; but under which of these heads are we to place the 
obligation imposed on people to perform their contracts ? Non- 
performance does not necessarily imply fraud ; the person who 
entered into the contract may have sincerely intended to fulfil it : 
and the term fraud, which can scarcely admit of being extended 
even to the case of voluntary breach of contract when no deception 
was practised, is certainly not applicable when the omission to 
perform is a case of negligence. Is it no part of the duty of govern- 
ments to enforce contracts ? Here the doctrine of non-interference 
would no doubt be stretched a little, and it would be said that 
enforcing contracts is not regulating the affairs of individuals at the 
pleasure of government, but giving effect to their own expressed 
desire. Let us acquiesce in this enlargement of the restrictive 
theory, and take it for what it is worth. But governments do not 
limit thek concern with contracts to a simple enforcement. They 
take upon themselves to determine what contracts are fit to be 
enforced. It is not enough that one person, not being either cheated 
or compelled, makes a promise to another. There are promises by 
which it is not for the public good that persons should have the power 
of binding themselves. To say nothing of engagements to do 
something contrary to law, there are engagements which the law 
refuses to enforce, for reasons connected with the interest of the 
promiser, or with the general policy of the state. A contract by 
which a person sells himself to another as a slave would be declared 
void by the tribunals of this and of most other European countries. 
There are few nations whose laws enforce a contract for what is 
looked upon as prostitution, or any matrimonial engagement of 
which the conditions vary in any respect from those which the 
law has thought fit to prescribe. But when once it is admitted that 
there are any engagements which for reasons of expediency the law 
ought not to enforce, the same question is necessarily opened with 
respect to all engagements. Whether, for example, th© law should 
enforce a contract to labour when the wages are too low or the hours 
of work too severe : whether it should enforce a contract by which 
a person binds himself to remain, for more than a very limited period, 
in the service of a given individual : whether a contract of marriage, 
entered into for life, should continue to be enforced against the 
deliberate will of the persons, or of either of the persons, who entered 
into it. Every question which can possibly arise as to the policy 
of contracts, and of the relations which they establish among human 



FUNCTIONS OF GOVERNIVIENT IN GENERAL 799 

beings, is a question for the legislator ; and one wliicli ke cannot 
escape from considering, and in some way or other deciding. 

Again, the prevention and suppression of force and fraud afford 
appropriate employment for soldiers, poHcemen, and criminal 
judges ; but there are also civil tribunals. The punishment of 
wrong is one business of an administration of justice, but the decision 
of disputes is another. Innumerable disputes arise between persons, 
without mala fides on either side, through misconception of their 
legal rights, or from not being agreed about the facts, on the proof 
of which those rights are legally dependent. Is it not for the general 
interest that the State should appoint persons to clear up these 
uncertainties and terminate these disputes ? It cannot be said to 
be a case of absolute necessity. People might appoint an arbitrator, 
and engage to submit to his decision ; and they do so where there 
are no courts of justice, or where the courts are not trusted, or 
where their delays and expenses, or the irrationahty of their rules 
of evidence, deter people from resorting to them. Still, it is univer- 
Bally thought right that the State should estabUsh civil tribunals ; 
and if their defects often drive people to have recourse to substitutes, 
even then the power held in reserve of carrying the case before a 
legally constituted court gives to the substitutes their principal 
efficacy. 

Not only does the State undertake to decide disputes, it takes 
precautions beforehand that disputes may not arise. The laws 
of most countries lay down rules for determining many things, 
not because it is of much consequence in what way they are deter- 
mined, but in order that they may be determined somehow, and there 
may be no question on the subject. The law prescribes forms of 
words for many kinds of contract, in order that no dispute or 
misunderstanding may arise about their meaning : it makes provision 
that, if a dispute does arise, evidence shall be procurable for deciding 
it, by requiring that the document be attested by witnesses and 
executed with certain formaUties. The law preserves authentic 
evidence of facts to which legal consequences are attached, by 
keeping a registry of such facts ; as of births, deaths, and marriages, 
of wills and contracts, and of judicial proceedings. In doing these 
things, it has never been alleged that government oversteps the 
proper limits of its functions. 

Again, however wide a scope we may allow to the doctrine that 
individuals are the proper guardians of their own interests, and 
that government owes nothing to them but to save them from being 



800 BOOK V. CHAPTER I. § S 

interfered with by other people, the doctrine can never be applicable 
to any persons but those who are capable of acting in their own 
behalf. The individual may be an infant, or a lunatic, or fallen 
into imbecility. The law surely must look after the interest of such 
persons. It does not necessarily do this through officers of its own. 
It often devolves the trust upon some relative or connexion. But, 
in doing so, is its duty ended ? Can it make over the interests of one 
person to the control of another, and be excused from supervision, 
or from holding the person thus trusted responsible for the discharge 
of the trust ? 

There is a multitude of cases in which governments, with general 
approbation, assume powers and execute functions for which no 
reason can be assigned except the simple one, that they conduce 
to general convenience. We may take as an example, the function 
(which is a monopoly too) of coining money. This is assumed for 
no more recondite purpose than that of saving to individuals the 
trouble, delay, and expense of weighing and assaying. No one, 
however, even of those most jealous of state interference, has 
objected to this as an improper exercise of the powers of government. 
Prescribing a set of standard weights and measures is another 
instance. Paving, lighting, and cleansing the streets and thorough- 
fares is another ; whether done by the general government, or, as 
is more usual, and generally more advisable, by a municipal authority. 
Making or improving harbours, building Ughthouses, making surveys 
in order to have accurate maps and charts, raising dykes to keep 
the sea out, and embankments to keep rivers in, are cases in point. 

Examples might be indefinitely multiplied without intruding on 
any disputed ground. But enough has been said to show that the 
admitted functions of government embrace a much wider field than 
can easily be included within the ring-fence of any restrictive defini- 
tion, and that it is hardly possible to find any ground of justification 
common to them all, except the comprehensive one of general expedi- 
ency; nor to limit the interference of government by any universal 
rule, save the simple and vague one, that it should never be admitted 
But when the case of expediency is strong. 

§ 3. Some observations, however, may be usefully bestowed 
on the nature of the considerations on which the question of govern- 
ment interference is most likely to turn, and on the mode of estimating 
the comparative magnitude of the expediencies involved. This will 
form the last of the three parts, into which our discussion of the 



FUNCTIONS OF GOVERNMENT IN GENERAL 801 

principles and effects of government interference may conveniently 
be divided. Tlie following will be our division of the subject. 

We shall first consider the economical effects arising from the i 
manner in which governments perform their necessary and acknow- 
ledged functions. 

We shall then pass to certain governmental interferences of 
what I have termed the optional kind {i.e. overstepping the o^ 
boundaries of the universally acknowledged functions) which have 
heretofore taken place, and in some cases still take place, under the 
influence of false general theories. 

It will lastly remain to inquire whether, independently of any 
false theory, and consistently with a correct view of the laws which 3 
regulate human affairs, there be any cases of the optional class in 
which gov^^umental interference is really advisable, and what are 
those cases. 

The first of these divisions is of an extremely miscellaneous 
character : since the necessary functions of government, and those 
which are so manifestly expedient that they have never or very 
rarely been objected to, are, as already pointed out, too various to be 
brought under any very simple classification. Those, however, 
which are of principal importance, which alone it is necessary here 
to consider, may be reduced to the following general heads. ^-** 

First, the means adopted by governments to raise the revenue I 
which is the condition of their existence. 

Secondly, the nature of the laws which they prescribe on the two ^. 
great subjects of Property and Contracts. 

Thirdly, the excellences or defects of the system of means by ^ 
which they enforce generally the execution of their laws, namely, 
their judicature and poHce. 

We commence with the first head, that is, with the theory of 
Taxation. 



2 © 



CHAPTER II 

ON THE GENERAL PRINCIPLES OF TAXATION 

§ 1. The qualities desirable, economically speaking, in a system 
of taxation, have been embodied by Adam Smith in four maxims oi 
principles, which, having been generally concurred in by subse- 
quent writers, may be said to have become classical, and this chapter 
cannot be better commenced than by quoting them.* 

" 1. The subjects of every state ought to contribute to the 
support of the government as nearly as possible in proportion to 
their respective abihties : that is, in proportion to the revenue 
which they respectively enjoy under the protection of the state. 
In the observation or neglect 61 this maxim consists what is called 
the equality or inequahty of taxation. 

" 2. The tax which each individual is bound to pay ought to be 
certain, and not arbitrary. The time of payment, the manner of 
payment, the quantity to be paid, ought all to be clear and plain 
to the contributor, and to every other person. Where it is otherwise, 
every person subject to the tax is put more or less in the power of 
the tax-gatherer, who can either aggravate the tax upon any ob- 
noxious contributor, or extort, by the terror of such aggravation, 
some present or perquisite to himself. The uncertainty of taxation 
encourages the insolence and favours the corruption of an. order of 
men who are naturally unpopular, even when they are neither 
insolent nor corrupt. The certainty of what each individual ought 
to pay is, in taxation, a matter of so great importance, that a very 
considerable degree of inequahty, it appears, I beUeve, from the 
experience of all nations, is not near so great an evil as a very small 
degree of uncertainty. 

" 3. Every tax ought to be levied at the time, or in the manner, 
in which it is most hkely to be convenient for the contributor to 
pay it. A tax upon the rent of land or of houses, payable at the 
* Wealth of Nations, book v. ch. ii 



GENERAL PHINCIPLES OE TAXATION 803 

same term at which such rents are usually paid, is levied at a time 
when it is most hkely to be convenient for the contributor to pay ; 
or when he is most hkely to have wherewithal to pay. Taxes upon 
such consumable goods as are articles of luxury are all finally paid 
by the consumer, and generally in a manner that is very convenient 
to him. He pays them by httle and Uttle, as he has occasion to 
buy the goods. As he is at hberty, too, either to buy or not to 
buy, as he pleases, it must be his own fardt if he ever suffers any 
considerable inconvenience from such tales. 

" 4. Every tax ought to be so contrived as both to take out and 
to keep out of the pockets of the people as httle as possible over and 
above what it brings into the pubhc treasury of the state. A tax 
may either take out or keep out of the pockets of the people a great 
deal more than it brings into the pubhc treasury, in the four following 
ways. First, the levying of it may require a great number of 
officers, whose salaries may eat up the greater part of the produce 
of the tax, and whose perquisites may impose another additional 
tax upon the people." Secondly, it may divert a portion of the 
labour and capital of the community from a more to a less pro- 
ductive employment. " Thirdly, by the forfeitures and other 
penalties which those unfortunate individuals incur who attempt 
unsuccessfully to evade the tax, it may frequently ruin them, and 
thereby put an end to the benefit which the community might have 
derived from the employment of their capitals. An injudicious 
tax offers a great temptation to smugghng. Fourthly, by subject- 
ing the people to the frequent visits and the odious examination of 
the tax-gatherers, it may expose them to much unnecessary trouble, 
vexation, and oppression : " to which may be added, that the 
restrictive regulations to which trades and manufactures are often 
subjected to prevent evasion of a tax, are not only in themselves 
troublesome and expensive, but often oppose insuperable obstacles 
to making improvements in the processes. 

The last three of these four maxims require httle or other 
explanation or illustration than is contained in the passage itself. 
How far any given tax conforms to, or conflicts with them, is a 
matter to be considered in the discussion of particular taxes. But 
the first of the four points, equahty of taxation, requires to be more 
fully examined, being a thing often imperfectly understood, and on 
which many false notions have become to a certain degree accredited, 
through the absence of any definite principles of judgment in the 
popular mind. 



eo4 BOOK V. CHAPTER IL § 2 

§ 2. For what reason ouglit equality to be the rule in matters 
of taxation ? For the reason that it ought to be so in all affairs of 
government. As a government ought to make no distinction of 
persons or classes in the strength of their claims on it, whatever 
sacrifices it requires from them should be made to bear as nearly 
as possible with the same pressure upon all, which, it must be 
observed, is the mode by which least sacrifice is occasioned on the 
whole. If any one bears less than his fair share of the burthen, 
some other person must suffer more than his share, and the allevia- 
tion to the one is not, cceteris 'paribus, so great a good to him, as the 
increased pressure upon the other is an evil. Equality of taxation,^ 
therefore, as^ a maxim ol,£ditics,jmeans equality of sacrifice, It 
means apportioning the contribution of each person towards the 
expenses of government so that he shall feel neither more nor less 
inconvenience from his share of the payment than every other 
person experiences from his. This standard, like other standards 
of perfection, cannot be completely reaUzed ; but the first object 
in every practical discussion should be to know what perfection is. 

There are persons, however, who are not content with the 
general principles of justice as a basis to ground a rule of finance 
upon, but must have something, as they think, more specifically 
appropriate to the subject. What best pleases them is, to regard 
the taxes paid by each member of the community as an equivalent 
for value received, in the shape of service to himself ; and they prefer 
to rest the justice of making each contribute in proportion to his 
means, upon the ground, that he who has twice as much property 
to be protected receives, on an accurate calculation, twice as much 
protection, and ought, on the principles of bargain and sale, to pay 
twice as much for it. Since, however, the assumption that govern- 
ment exists solely for the protection of property, is not one to be 
dehberately adhered to ; some consistent adherents of the quid 
fro quo principle go on to observe, that protection being required 
for person as well as property, and everybody's person receiving 
the same amount of protection, a poll-tax of a fixed sum per head 
is a proper equivalent for this part of the benefits of government, 
while the remaining part, protection to property, should be paid for 
in proportion to property. There is in this adjustment a false air 
of nice adaptation, very acceptable to some minds. But in the 
first place, it is not admissible that the protection of persons and 
that of property are the sole purposes of government. The ends of 
government are as comprehensive as those of the social union. They 



GENERAL PRINCIPLES OF TAXATION 805 

consist of all the good, and all the immunity from evil, which the 
existence of government can be made either directly or indirectly to 
bestow. In the second place, the practice of setting definite values 
on things essentially indefinite, and making them a ground of practical 
conclusions, is peculiarly fertile in false views of social questions. It 
cannot be admitted that to be protected in the ownership of ten 
times as much property is to be ten times as much protected. 
Neither can it be truly said that the protection of lOOOL a year* costs 
the state ten times as much as that of 1001. a year, rather than twice 
as much, or exactly as much. The same judges, soldiers, and 
sailors who protect the one protect the other, and the larger income 
does not necessarily, though it may sometimes, require even more 
policemen. Whether the labour and expense of the protection, or 
the feelings of the protected person, or any other definite thing be 
made the standard, there is no such proportion as the one supposed, 
nor any other definable proportion. If we wanted to estimate the 
degrees of benefit which different persons derive from the protection 
of government we should have to consider who would suffer most 
if that protection were withdrawn : to which question if any answer 
could be made, it must be that those would suffer most who were 
weakest in mind or body, either by nature or by position. Indeed, 
such persons would almost infallibly be slaves. If there were any 
justice, therefore, in the theory of justice now under consideration, 
those who are least capable of helping or defending themselves, 
being those to whom the protection of government is the most 
indispensable, ought to pay the greatest share of its price : the re- 
verse of the true idea of distributive justice, which consists not in 
imitating but in redressing the inequalities and wrongs of nature. 
Government must be regarded as so pre-eminently a concern 
of all, that to determine who are most interested in it is of no real 
importance. If a person or class of persons receive so small a share 
of the benefit as makes it necessary to raise the question, there is 
something else than taxation which is amiss, and the thing to be 
done is to remedy the defect, instead of recognising it and making 
it a ground for demanding less taxes. As, in a case of voluntary 
subscription for a purpose in which all are interested, all are thought 
to have done their part fairly when each has contributed according 
to his means, that is, has made an equal sacrifice for the common 
object ; in Hke manner should this be the principle of compulsory 
contributions : and it is superfluous- to look for a more ingenious 
or recondite ground to rest the principle upon. 



806 BOOK V.' CHAPTER 11. § 3 

§ 3. Setting out, then, from the maxim that equal sacrifices 
ought to be demanded from all, we have next to inquire whether 
this is in fact done by making each contribute the same percentage 
on his pecuniary means. Many persons maintain the negative, 
saying that a tenth part taken from a small income is a heavier 
burthen than the same fraction deducted from one much larger : 
and on this is grounded the very popular scheme of what is called a 
graduated property tax, viz. an income tax in which the percentage 
rises with the amount of the income. 

On the best consideration I am able to give to, this question, it 
appears to me that the portion of truth which the doctrine con- 
tains arises principally from the difference between a tax which can 
be saved from luxuries and one which trenches, in ever so small a 
degree, upon the necessaries of life. To take a thousand a year 
from the possessor of ten thousand would not deprive him of any- 
thing really conducive either to the support or to the comfort of 
existence ; and if such would be the effect of taking five pound from 
one whose income is fifty, the sacrifice required from the last is not 
only greater than, but entirely incommensurable with, that imposed 
upon the first. The mode of adjusting these inequahties of pressure, 
which seems to be the most equitable, is that recommended by Ben- 
tham, of leaving a certain minimum of income, sufficient to provide 
the necessaries of life, untaxed. Suppose 50Z. a year to be sufficient 
to provide the number of persons ordinarily supported from a single 
income with the requisites of life and health, and with protection 
against habitual bodily suffering, but not with any indulgence. 
This then should be made the minimum, and incomes exceeding it 
should pay taxes not upon their whole amount, but upon the surplus. 
If the tax be ten per cent., an income of 60Z. should be considered 
as a net income of lOL, and charged with IZ. a year, while an income 
of lOOOZ. should be charged as one of 950L Each would then pay 
a fixed proportion, not of his whole means, but of his superfluities.* 
An income not exceeding 50Z. should not be taxed at all, either 
directly or by taxes on necessaries ; for as by supposition this is 
the smallest income which labour ought to be able to command, the 
government ought not to be a party to making it smaller. This 
arrangement, however, would constitute a reason, in addition to 

* [1865] This principle of assessment has been partially adopted by Mr. 
Gladstone in renewing the income-tax. From lOOL, at which the tax be^pfins, 
up to 200Z., the income only pays tax on the excess above 60Z. 

[For the subsequent history of the Income Tax see Appendix EE.J 



GENERAL PRINCIPLES OF TAXATION 807 

others wliich miglit be stated, for maintaining taxes on articles of 
luxury consumed by the poor. The immunity extended to the 
income required for necessaries, should depend on its being actually 
expended for that purpose ; and the poor who, not having more 
than enough for necessaries, divert any part of it to indulgences, 
should like other people contribute their quota out of those 
indulgences to the expenses of the state. 

The exemption in favour of the smaller incomes should not, I 
think, be stretched further than to the amount of income needful 
for Hfe, health, and immunity from bodily pain. If 50Z. a year 
is sufficient (which may be doubted) for these purposes, i au income 
of 100?. a year would, as it seems to me, obtain all the relief it is 
entitled to, compared with one of lOOOZ., by being taxed only on 
bOl. of its amount. It may be said, indeed, that to take 100?. from 
lOOOZ. (even giving back five pounds) is a heavier impost than lOOOZ. * 
taken from 10,000?. (giving back the same five pounds). But this 
doctrine seems to me too disputable altogether, and even if true at all, 
not true to a sufficient extent to be made the foundation of any 
rule of taxation. Whether the person with 10,000?. a year cares j. 
less for 1000?. than the person with only a 1000?. a year cares for 
100?., and if so, how much less, does not appear to me capable of 
being decided with the degree of certainty on which a legislator | , 
or a financier ought to act.^ I 

Some indeed contend that the rule of proportional taxation bears 
harder upon the moderate than upon the large incomes, because 
the same proportional payment has more tendency, in the former 
case than in the latter, to reduce the payer to a lower grade of 
social rank. The fact appears to me more than questionable. 
But even admitting it, I object to its being considered incumbent 
on government to shape its course by such considerations, or to 
recognise the notion that social importance is or can be determined 
by amount of expenditure. Government ought to set an example 
of rating all things at their true value, and riches, therefore at 
the worth, for comfort or pleasure, of the things which they will 

1 [Added in 5th ed. (1862). The original (1848) text ran : " An income of 

1001. a year would, as it seems to me, obtain all the relief it is entitled to," &c.] 

2 [This last sentence replaced in the 3rd ed. (1852) the following sentence 
of the original text : "To tax aU incomes in an equal ratio, would be unjust to 
those the greater part of whose income is required for necessaries ; but I can 
see no fairer standard of real equality than to take from aU persons, whatever 
may be their amount of fortune, the same arithmetical proportion of their 
superfluities."] 



y 



808 BOOK V. CHAPTER II. § 3 

buy : and ought not to sanction the vulgarity of prizing them for 
the pitiful vanity of being known to possess them, or the paltry 
shame of being suspected to be without them, the presiding motives 
of three-fourths of the expenditure of the middle classes. The 
sacrifices of real comfort or indulgence which government requires 
it is bound to apportion among all persons with as much equality 
as possible ; but their sacrifices of the imaginary dignity dependent 
on expense it may spare itself the trouble of estimating. 

Both in England and on the Continent a graduated property 
tax [Vimfot frogressif) has been advocated, on the avowed ground 
that the state should use the instrument of taxation as a means 
of mitigating the inequahties of wealth. I am as desirous as any one 
that means should be taken to diminish those inequahties, but not 
so as to reheve the prodigal at the expense of the prudent.^ To 
tax the larger incomes at a higher percentage than the smaller is 
to lay a tax on industry and economy ; to impose a penalty on 
people for having worked harder and saved more than their neigh- 
/'■f hours. It is not the fortunes which are earned, but those which 
J are unearned, that it is for the pubhc good to place under Hmitation.2 
A just and wise legislation would abstain from holding out motives 
for dissipating rather than saving the earnings of honest exertion.^ 
Its impartiality between competitors would consist in endeavouring 
that they should all start fair, and not in hanging a weight upon 
the swift to diminish the distance between them and the slow.* 
Many, indeed, fail with greater efforts than those with which others 
succeed, not from difference of merits, but difference of opportuni- 
ties ; but if all were done which it would be in the power of a good 
government to do, by instruction and by legislation, to diminish 
this inequality of opportunities, the differences of fortune arising 
from people's own earnings could not justly give umbrage.^ With 

^ [So since the 3rd ed. (1852). The original text ran : " but not so as to 
impair the motives on which society depends for keeping up (not to say in- 
creasing) the produce of its labour and capital.] 

2 [This sentence replaced in the 3rd ed. a sentence of the original : " It is 
partial taxation, which is a mild form of robbery."] 

2 [This sentence replaced in the 3rd ed. the original sentence : " A just 
and wise legislation would scrupulously abstain from opposing obstacles to the 
acquisition of even the largest fortune by honest exertion."] 

^ [So since 3rd ed. Originally : " and not that, whether they were swift 
or slow, all should reach the goal at once."] 

^ [So since 3rd ed. Instead of the second half of this sentence the original 
ran : " and it is the part of a good government to provide, that, as far as more 
paramount considerations permit, the inequality of opportunities shall be 
remedied. When all kinds of useful instruction shall be as accessible as they 



GENERAL PRINCIPLES 01? TAXATION 809 

respect to the large fortunes acquired by gift or inheritance, the 
power of bequeathing is ^ one of those privileges of property which 
are fit subjects for regulation on grounds of general expediency ; 
and I have already suggested * as a possible mode ^ of restraining 
the accumulation of large fortunes in the hands of those who have 
not earned them by exertion, a Umitation of the amount which 
any one person should be permitted to acquire by gift, bequest, or 
inheritance. Apart from this, and from the proposal of Bentham 
(also discussed in a former chapter) that collateral inheritance ah 
intestato should cease, and the property escheat to the state, I 
conceive that inheritances and legacies, exceeding a certain amount, 
are highly proper subjects for taxation : and that the revenue from 
them should be as great as it can be made without giving rise to 
evasions, by donation inter vivos or concealment of property, such 
as it would be impossible adequately to check. The principle of 
graduation (as it is called), that is, of levying a larger percentage 
on a larger sum, though its application to general taxation would 
be in my opinion objectionable,^ seems to me both just and expedient^ 
as apphed to legacy and inheritance duties.^ 

The objection to a graduated property tax applies in an aggra- 
vated degree to the proposition of an exclusive tax on what is called 
" realized property," that is, property not forming a part of any 
capital engaged in business, or rather in business under the super- 
intendence of the owner : as land, the pubHc funds, money lent on 
mortgage, and shares (I presume) in joint stock companies. Excep t 
the_^oposal of applying a sponge to the national debt, no such 
.palpable violation of common honesty has found sufficient support 
in this country, during the present generation, to be regarded as 
within the domain of discussion. _It has not the palliation of a 

might be made, and when the cultivated intelligenoe of the poorer classes, aided 
so far as necessary by the guidance and co-operation of the state, shall obviate, 
as it might so well do, the major part of the disabilities attendant on poverty, 
the inequahties of fortune arising," &c.] 

^ [At this point were omitted in the 3rd ed. (1852) the following words of the 
original text : " is as much a part of the right of property as the power of using : 
that is not in the fullest sense a person's own, which he is not free to bestow 
on others. But this is," &c.] 
* Supra, book ii. ch. 2. 

2 [So since 3rd ed. Originally : " the most eligible mode."] 
' [So since 3rd ed. Originally : " would be a violation of first principles."] 
^ [So since 3rd ed. Originally : " is quite unobjectionable."] 
^ [The principle of graduation has been appHed to inheritance and legacy 
duties since 1894. See Bastable, Public Finance, 3rd ed. p. 599 ; Book iv. ch. 
y, § 6. For its application to the Income Tax see Appendix BE.] 



8i0 BOOK V. CHAPTER 11. § 4 

graduated property tax, that of laying the burthen on those best 
able to bear it ; for " reaUzed property " includes the far larger 
portion of the provision made for those who are unable to work, 
and consists, in great part, of extremely small fractions. I can 
hardly conceive a more shameless pretension, than that the major 
part of the property of the country, that of merchants, manufacturers, 
farmers, and shopkeepers, should be exempted from its share of 
taxation : that these classes should only begin to pay their pro- 
portion after retiring from business, and if they never retire should 
be excused from it altogether. But even this does not give an 
adequate idea of the injustice of the proposition. The burthen 
thus exclusively thrown on the owners of the smaller portion of the 
wealth of the community, would not even be a burthen on that 
class of persons in perpetual succession, but would fall exclusively 
on those who happened to compose it when the tax was laid on. 
As land and those particular securities would thenceforth yield a 
smaller net income, relatively to the general interest of capital and 
to the profits of trade ; the balance would rectify itself by a 
permanent depreciation of those kinds of property. Future buyers 
would acquire land and securities at a reduction of price, equivalent ; 
to the peculiar tax, which tax they would, therefore, escape from 
paying ; while the original possessors would remain burthened 
with it even after parting with the property, since they would 
have sold their land or securities at a loss of value equivalent to 
the fee-simple of the tax. Its imposition would thus be tanta- 
mount to the confiscation for. public uses of a percentage of their 
property, equal to the percentage laid on their income by the tax. 
That such a pr oposition should fin d a ny favour , is a striking instanc£ 
of th e want of conscience in m atters of taxation, resulting from the 
absence of any fixed princi ples in the public mind, and of an^ 
indicati on of a sense of just ice on the subject in the general conduct 
oT gove rnments. Should~the sch eme ever enHst a large party _in 
i ts support, the fact would indicate a la xity of pecuniary 
integrity in national affairs, scarcely inferior to American 
repudia^on. 

§ 4. Whether the profits of trade may not rightfully be taxed 
at a lower rate than incomes derived from interest or rent, is part of 
the more comprehensive question, so often mooted on the occasion 
of the present income tax, whether life incomes should be subjected 
to the same rate of taxation as perpetual incomes : whether salaries, 



GENERAL PRINCIPLES OF TAXATION 811 

for example, or annuities, or the gains of professions, should pay the 
same percentage as the income from inheritable property. 

The existing tax treats all kinds of incomes exactly alike, 
taking its sevenpence (now [1871] fourpence) in the pound, as well 
from the person whose income dies with him, as from the landholder, 
stockholder, or mortgagee, who can transmit his fortune undiminislied 
to his descendants. This is a visible injustice : yet it does not 
arithmetically violate the rule that taxation ought to be in proportion 
to means. When it is said that a temporary income ought to be 
taxed less than a permanent one, the reply is irresistible, that it is 
taxed less ; for the income which lasts only ten years pays the tax 
only ten years, while that which lasts for ever pays for ever, i On 
this point some financial reformers are guilty of a great fallacy. 
They contend that incomes ought to be assessed to the income tax 
not in proportion to their annual amount, but to their capitalized 
value : that, for example, if the value of a perpetual annuity of 
1001. is 3000L, and a life annuity of the same amount, being worth 
only half the number of years' purchase could only be sold for 1500L, 
the perpetual income should pay twice as much per cent income 
tax as the terminable income ; if the one pays 101. a year the other 
should pay only 5Z. But in this argument there is the obvious 
oversight, that it values the incomes by one standard and the 
payments by another ; it capitalizes the incomes, but forgets to 
capitaHze the payments. An annuity worth 3000L ought, it is 
alleged, to be taxed twice as highly as one which is only worth 1500?., 
and no assertion can be more unquestionable ; but it is forgotten 
that the income worth 30001. pays to the supposed income tax 101. 
a year in perpetuity, which is equivalent, by supposition, to 300?., 
while the terminable income pays the same 101. only during the life 
of its owner, which on the same calculation is a value of 150?., and 
could actually be bought for that sum. Already, therefore, the 
income which is only half as valuable pays only half as much to the 
tax ; and if in addition to this its annual quota were reduced from 
10?. to 5?., it would pay, not half, but a fourth part only of the pay- 
ment demanded from the perpetual income. To make it just that 
the one income should pay only half as much per annum as the other, 
it would be necessary that it should pay that half for the same 
period, that is, in perpetuity. 



^ [The rest of this paragraph, — with the exception of the last sentence, 
added in the 4th ed. (1857),— was inserted in the 2nd ed. (1849).] 



812 BOOK V. CHAPTER II. § 4 

1 Tlie rule of payment wluch. this school of financial reformers 
contend for would be very proper if the tax were only to be levied 
once, to meet some national emergency. On the principle of 
requiring from all payers an equal sacrifice, every person who had 
anything belonging to him, reversioners included, would be called on 
for a payment proportioned to the present value of his property. 
I wonder it does not occur to the reformers in question, that precisely 
because this principle of assessment would be just in the case of a 
payment made once for all, it cannot possibly be just for a permanent 
tax. When each pays only once, one person pays no oftener than 
another ; and the proportion which would be just in that case can- 
not also be just if one person has to make the payment only once, 
and the other several times. This, however, is the type of the case 
which actually occurs. The permanent incomes pay the tax as much 
oftener than the temporary ones, as a perpetuity exceeds the certain 
or uncertain length of time which forms the duration of the income for 
life or years. 

2 All attempts to establish a claim in favour of terminable incomes 
on numerical grounds — to make out, in short, that a proportional 
tax is not a proportional tax — are manifestly absurd. The claim 
does not rest on grounds of arithmetic, but of human wants and 
feelings. ^ It is not because the temporary annuitant has smaller 
means, but because he has greater necessities, that he ought to be 
assessed at a lower rate. 

In spite of the nominal equaUty of income, A, an annuitant of 
lOOOL a year, cannot so well afford to pay 1001. out of it, as B who 
derives the same annual sum from heritable property ; A having 
usually a demand on his income which B has not, namely, to provide 
by saving for children or others ; to which, in the case of salaries or 
professional gains, must generally be added a provision for his own 
later years ; while B may expend his whole income without injury 
to his old age, and still have it all to bestow on others after his death. 
If A, in order to meet these exigencies, must lay by 300Z. of his income, 
to take 1001. from him as income tax is to take lOOZ. from 7001., 
since it must be retrenched from that part only of his means which 
he can afford to spend on his own consumption. Were he to throw 
it rateably on what he spends and on what he saves, abating 701. 

1 [This paragraph inserted in 5th ed. (1862).] 

2 [Added in 2nd ed. (1849).] 

3 [Added in 3rd ed. (1852) with " greater wants '* : changed to " greater 
necessities " in 5th ed.] 



GENERAL PRINCIPLES OF TAXATION 813 

from his consumption and 30?. from his annual saving, then indeed 
his immediate sacrifice would be proportionately the same as B's : 
but then his children or his old age would be worse provided for in 
consequence of the tax. The capital sum which would be accu- 
mulated for them would be one-tenth less, and on the reduced income 
afforded by this reduced capital, they would be a second time 
charged with income tax ; while B's heirs would only be charged once. 

The principle, therefore, of equality of taxation, interpreted in i 
its only just sense, equality of sacrifice, requires that a person who i 
has no means of providing for old age, or for those in whom he is 
interested, except by saving from income, should have the tax 
remitted on all that part of his income which is really and bond fide 
applied to that purpose. 
r ^If, indeed, rehance could be placed on the conscience of the 
contributors, or sufficient security taken for the correctness of their 
statements by collateral precautions, the proper mode of assessing 
an income tax would be to tax only the part of income devoted to 
expenditure, exempting that which is saved. For when saved and 
invested (and all savings, speaking generally, are invested) it 
thenceforth pays income tax on the interest or profit which it brings, 
notwithstanding that it has already been taxed on the principal. , 
Unless, therefore, savings are exempted from income tax, the con- 
tributors are twice taxed on what they save, and only once on what 
they spend. A person who spends all he receives, pays 7d. in the 
pound, or say three per cent, to the tax, and no more ; but if he 

[This paragraph was inserted in the 3rd ed. (1852), in the place of the 
following passage which was made a footnote, but disappeared from the 5th 
ed. (1862) : 

" I say really applied, because (as before remarked in the case of an income 
not more than sufficient for subsistence) an exemption grounded on an assumed 
necessity ought not to be claimable by any one who practically emancipates 
himself from the necessity. One expedient might be, that the Income-Tax 
Commissioners should allow, as a deduction from income, all bond fide payments 
for insurance on life. This, however, would not provide for the case which 
most of all deserves consideration, that of persons whose lives are not insurable ; 
nor would it include the case of savings made as a provision for age. The 
latter case might, perhaps, be met by allowing as a deduction from income all 
payments made in the purchase of deferred annuities ; and the former by 
remitting income-tax on sums actually settled, and on sums paid into the hands 
of a pubhc officer, to be invested in securities, and repaid only to the executor 
or administrator : the tax so remitted, with interest from the date of deposit, 
being retained (for the prevention of fraud) as a first debt chargeable on the 
deposit itself, before other debts could be paid out of it ; but not demanded if' 
satisfactory proof were given that all debts had been paid from other resources. 
I throw out these suggestions for the consideration of those whose experience 
renders them adequate judges of practical difficulties."] 



814 BOOK V. CHAPTER II. § 4 

saves part of the year's income and buys stock, then in addition to 
the three per cent which he has paid on the principal, and which 
diminishes the interest in the same ratio, he pays three per cent 
annually on the interest itself , which is equivalent to an immediate 
payment of a second three per cent on the principal. So that while 
unproductive expenditure pays only three per cent, savings pay six 
per cent : or more correctly, three per cent on the whole, and 
another three per cent on the remaining ninety-seven. The differ- 
ence thus created to the disadvantage of prudence and economy is 
not only impolitic but unjust. To tax the sum invested, and 
afterwards to tax also the proceeds of the investment, is to tax the 
same portion of the contributor's means twice over. The principal 
and the interest cannot both together form part of his resources ; 
they are the same portion twice counted : if he has the interest, it 
is because he abstains from using the principal ; if he spends the 
principal, he does not receive the interest. Yet because he can do 
either of the two, he is taxed as if he could do both, and could have 
the benefit of the saving and that of the spending, concurrently with 
one another. 

1 It has been urged as an objection to exempting savings from 
taxation, that the law ought not to disturb, by artificial interference, 
the natural competition between the motives for saving and those 
for spending. But we have seen that the law disturbs this natural 
competition when it taxes savings, not when it spares them ; for, 
as the savings pay at any rate the full tax as soon as they are 
invested, their exemption from payment in the earlier stage is 
necessary to prevent them from paying twice, while money spent 
in unproductive consumption pays only once. It has been further 
objected, that since the rich have the greatest means of saving, 
any privilege given to savings is an advantage bestowed on the rich 
at the expense of the poor. I answer, that it is bestowed on them 
only in proportion as they abdicate the personal use of their riches ; 
in proportion as they divert their income from the supply of their 
own wants to a productive investment, through which, instead of 
being consumed by themselves, it is distributed in wages among 
the poor. If this be favouring the rich, I should like to have it 
pointed out what mode of assessing taxation can deserve the name 
of favouring the poor. 
^ 2 No income tax is really just from which savings are not exempted j 

1 [This paragraph inserted in 5th ed. (1862).] 

I [Here the text again dates from the 3rd ed. (1852) down to the proposal 



GENERAL PRINCIPLES OF TAXATION 815 

and no income tax ought to be voted without that provision, if the 
form of the returns, and the nature of the evidence required, cpuH 
be so arranged as to prevent the exemption from being taken frau- 
dulent advantage of, by saving "with one hand and getting into debt 
with the other, or by spending in the following year what had been 
passed tax-free as saving in the year preceding. If this difficulty 
could be surmounted, the difficulties and complexities arising from 
the comparative claims of temporary and permanent incomes 
would disappear ; for, since temporary incomes have no just claim 
to lighter taxation than permanent incomes, except in so far as 
their possessors are more called upon to save, the exemption of what 
they do save would fully satisfy the claim. But if no plan can be 
devised for the exemption of actual savings, sufficiently free from 
liability to fraud, it is necessary, as the next thing in point of justice, 
to take into account, in assessing the tax, what the different classes 
of contributors ought to save. And there would probably be no 
other mode of doing this than the rough expedient of two different 
rates of assessment. There would be great difficulty in taking into 
account differences of duration between one terminable income and 
another ; and in the most frequent case, that of incomes dependent 
on Hfe, differences of age and health would constitute such extreme 
diversity as it would be impossible to take proper cognizance of. 
It would probably be necessary to be content with one uniform rate 
for all incomes of inheritance, and another uniform rate for all those 
which necessarily terminate with the hfe of the individual. In fixing 
the proportion between the two rates, there must inevitably be some- 
thing arbitrary ; perhaps a deduction of one-fourth in favour of 
Hfe-incoLies would be as Uttle objectionable as any which could be 
made, it being thus assumed that one-fourth of a life-income is, on 
the average of all ages and states of health, a suitable proportion to 
be laid by as a provision for successors and for old age.* 

of " two difierent rates of assessment," from which point the text becomes 
that of the original edition (1848).] 

* [1862] Mr. Hubbard, the first person who, as a practical legislator, has 
attempted the rectification of the income tax on principles of unimpeachable 
ijustice, and whose well-conceived plan wants Uttle of being as near an approxi- 
mation to a just assessment as it is likely that means could be found of carry- 
ing into practical effect, proposes a reduction not of a fourth but of a third, in 
favour of industrial and professional incomes. He fixes on this ratio, on the 
ground that, independently of all consideration as to what the industrial and 
professional classes ought to save, the attainable evidence goes to prove that a 
third of their incomes is what on an average they do save, over and above the 
proportion saved by other classes. " The savings " (Mr. Hubbard observes) 
'* effected out of incomes derived from invested property are estimated at one- 



816 BOOK V. CHAPTER 11. § 4 

Of the net profits of persons in business, a part, as before observed, 
may be considered as interest on capital, and of a perpetual character, 
and the remaining part as remuneration for the skill and labour of 
superintendence. The surplus beyond interest depends on the life 
of the individual, and even on his continuance in business, and is 
entitled to the full amount of exemption allowed to terminable 
incomes. ^It has also, I conceive, a just claim to a further amount 
of exemption in consideration of its precariousness. An income 
which some not unusual vicissitude may reduce to nothing, or even 
convert into a loss, is not the same thing to the feelings of the possessor 
as a permanent income of lOOOZ. a year, even though on an average 

tenth. The savings effected out of industrial incomes are estimated at four- 
tenths. The amounts which would be assessed under these two classes being 
nearly equal, the adjustment is simplified by striking off one-tenth on either 
side, and then reducing by three-tenths, or one-third, the assessable amount 
of industrial incomes." Proposed Report (p. xiv. of the Beport and Evidence 
of the Committee of 1861). In such an estimate there must be a large element 
of conjecture ; but in so far as it can be substantiated, it affords a valid ground 
for the practical conclusion which Mr. Hubbard founds on it. 

[1848] Several writers on the subject, including Mr. Mill in his Elements of 
Political Economy, and Mr. M'CuUoch in his work on Taxation, have contended 
that as much should be deducted as would be sufficient to insure the possessor's 
life for a sum which would give to his successors for ever an income equal to 
what he reserves for himself ; since this is what the possessor of heritable pro- 
perty can do without saving at all : in other words, that temporary incomes 
should be converted into perpetual incomes of equal present value, and taxed 
as such. If the owners of life-incomes actually did save this large proportion 
of their income, or even a still larger, I would gladly grant them an exemption 
from taxation on the whole amount, since, if practical means could be found 
of doing it, I would exempt savings altogether. But I cannot admit that they 
have a claim to exemption on the general assumption of their being obliged to 
save this amount. Owners of life-incomes are not bound to forego ^he enjoy- 
ment of them for the sake of leaving to a perpetual line of successors an 
independent provision equal to their own temporary one ; and no one ever 
dreams of doing so. Least of all is it to be required or expected from those 
whose incomes are the fruits of personal exertion, that they should leave to 
their posterity for ever, without any necessity for exertion, the same incomes 
which they allow to themselves. All they are bound to do, even for their 
children, is to place them in circumstances in which they will have favourable 
chances of earning their own living. To give, however, either to children or to 
others, by bequest, being a legitimate inclination, which these persons cannot 
indulge without laying by a part of their income, while the owners of heritable 
property can ; this real inequality in cases where the incomes themselves 
are equal, should be considered, to a reasonable degree, in the adjustment of 
taxation, so as to require from both, as nearly as practicable, an equal sacrifice. 

* [The remainder of this paragraph dates from the 3rd ed. (1852). In the 
original it was said, " Of the net profits of persons in business one half may 
perhaps be considered as interest on capital , . . and the other half as re- 
muneration " &c. ; and the paragraph ended thus : " For profits, therefore, 
an intermediate rate might be adopted, one half of the net income being 
taxed on the higher scale and the other half on the lower."] 



GENERAL PRINCIPLES OF TAXATION 817 

of years it may yield lOOOZ. a year. If life-incomes were assessed at 
tliree-fourths of their amount, the profits of business, after deducting 
interest on capital, should not only be assessed at three-fourths, 
but should pay, on that assessment, a lower rate. Or perhaps the 
claims of justice in this respect might be sufficiently met by allowing 
the deduction of a fourth on the entire income, interest included. 
These are the chief cases, of ordinary occurrence, in which any 
difficulty arises in interpreting the maxim of equahty of taxation. 
The proper sense to be put upon it, as we have seen in the preceding 
example, is, that people should be taxed, not in proportion to what 
they have, but to what they can afford to spend. It is no objection 
to this principle that we cannot apply it consistently to all cases. 
A person with a life-income and precarious health, or who has many 
persons depending on his exertions, must, if he wishes to provide 
for them after his death, be more rigidly economical than one who 
has a life-income of equal amount, with a strong constitution, and 
few claims upon him ; and if it be conceded that taxation cannot 
accommodate itself to these distinctions, it is argued that there is no 
use in attending to any distinctions, where the absolute amount of 
income is the same. But the difficulty of doing perfect justice is no 
reason against doing as much as we can. Though it may be a hard- 
ship to an annuitant whose Ufe is only worth five years' purchase, to 
be allowed no greater abatement than is granted to one whose Hfe 
is worth twenty, it is better for him even so, than if neither of them 
were allowed any abatement at all.^ 

§ 5. Before leaving the subject of Equality of Taxation, I must 
remark that there are cases in which exceptions may be made to it, 
consistently with that equal justice which is the groundwork of the 
rule. Suppose that there is a kind of income which constantly 
tends to increase, without any exertion or sacrifice on the part of the 
owners^ those owners constituting a class in the community, whom 
the natural course of things progressively enriches, consistently 
with complete passiveness on their own part. In such a case it 

^ [Between the last revision of this chapter and the present edition 
(1909), important changes have been made in the Income Tax: — 

(1) The extension of the system of abatements has made the tax in effect 

progressive up to incomes of £700. 

(2) It has been made allowable to deduct life insurance premiums actually 

paid, up to one sixth of the income. 
(3) Adistinction has been introduced between "earned" and "unearned" 
incomes, and a lower rate charged on the former. See Appendix EE]. 



V 



818 BOOK V. CHAPTER 11. § 5 

would be no violation of the principles on which private property is 
grounded, if the state should appropriate this increase of wealth, or 
part of it, as it arises. This would not properly be taking anything 
from anybody ; it would merely be applying an accession of wealth, 
created by circumstances, to the benefit of society, instead of allowing 
it to become an unearned appendage to the riches of a particular classT^ 

Now this is actually the case ^with rent. The ordinary progress 
of a society which increases in wealth is at all times tending to 
augment the incomes of landlords ; to give them both a greater 
amount and a greater proportion of the wealth of the community, in- 
dependently of any trouble or outlay incurred by themselves. They 
. I grow richer, as it were in their sleep, without working, risking, or 
I economizing. What claim have they, on the general principle of 
social justice, to this accession of riches ? In what would they 
have been wronged if society had, from the beginning, reserved 
the right of taxing the spontaneous increase of rent, to the highest 
amount required by financial exigencies ? I admit that it would be 
unjust to come upon each individual estate, and lay hold of the 
increase which might be found to have taken place in its rental ; 
because there would be no means of distinguishing in individual 
cases between an increase owing solely to the general circumstances 
of society, and one which was the effect of skill and expenditure 
on the part of the proprietor. The only admissible mode of pro- 
ceeding would be by a general measurcf The first step should be_a 
valuation of all the land in the country/^ The present value of a,ll 
land should be exempt from the tax ; but after an interval had 
elapsed, during which society had increased in population and 
capital, a rough estimate might be made of the spontaneous increase 
which had accrued to rent since the valuation was made. Of this 
\ i the average price of produce would be some criterion : if that had 
risen, it would be certain that rent had increased, and (as already 
shown) even in a greater ratio than the rise of price. On this and 
• other data, an approximate estimate might be made, how much 
value had been added to the land of the country by natural causes^jy^ 
and in lajdng on a general land-tax, which for fear of miscalculation 
should be considerably within the amount thus indicated, there 
would be an assurance of not touching any increase of income which 
might be the result of capital expended or industry exerted by the 
proprietor. 

But though there could be no question as to the justice of taxing 
the increase of rent, if society had avowedly reserved the right, has 



GEJTERAL PRINCTPLES OF TAXATION 819 

not society waived that right by not exercising it ? In England, 
for example, have not all who bought land for the last century or 
more, given value not only for the existing income, but for the 
prospects of increase, under an imphed assurance of being only 
taxed in the same proportion with other incomes ? This objection, in 
so far as vaHd, has a different degree of vaHdity in different countries ; 
depending on the degree of desuetude into which society has allowed 
a right to fall, which, as no one can doubt, it once fully possessed. 
In most countries of Europe, the right to take by taxation, as exigency 
might require, an indefinite portion of the rent of land, has never 
been allowed to slumber. In several parts of the Continent, the 
land-tax forms a large proportion of the public revenues, and has 
always been confessedly Kable to be raised or lowered without 
reference to other taxes. In these countries no one can pretend to 
have become the owner of land on the faith of never being called 
upon to pay an increased land-tax. In England the land-tax has 
not varied since the early part of the last century. The last act of 
the legislature in relation to its amount, was to diminish it ; and 
though the subsequent increase in the rental of the country has been 
immense not only from agriculture, but from the growth of towns 
and the increase of buildings, the ascendency of landholders in the 
legislature has prevented any tax from being imposed, as it so justly 
might, upon the very large portion of this increase which was un- 
earned, and, as it were, accidental. For the expectations thus 
raised, it appears to me that an amply sufficient allowance is made, 
if the whole increase of income which has accrued during this long 
period from a mere natural law, without exertion or sacrifice, is 
held sacred from any pecuKar taxation. From the present date, or 
any subsequent time at which the legislature may think fit to assert 
the principle, I see no objection to declaring that the future incre- 
ment of rent should be Hable to special taxation ; in doing which 
all injustice to the landlords would be obviated if the present 
market-price of their land were secured to them ; since that includes 
the present value of all future expectations. With reference to such 
a tax, perhaps a safer criterion than either a rise of rents or a rise 
of the price of corn, would be a general rise in the price of land. It 
would be easy tp keep the tax within the amount which would reduce 
the market value of land below the original valuation : and up to 
that point, whatever the amount of the tax might be, no injustice 
would be done to the proprietors.^ 

* [See Appendix FF. The Taxation of Land.] 



820 BOOK V. CHAPTER II. § 6 « 

§ 6. But whatever may be tliouglit of tlie legitimacy of making 
the State a sharer in all future increase of rent from natural causes, 
the existing land-tax (which in this country unfortunately is very 
small) ought not to be regarded as a tax, but as a rent-charge in 
favour of the pubKc ; a portion of the rent, reserved from the be- 
ginning by the State, which has never belonged to or formed part 
of the income of the landlords, and should not therefore be counted 
to them as part of their taxation, so as to exempt them from their 
fair share of every other tax. As well might the tithe be regarded 
as a tax on the landlords : as well, in Bengal, where the State, 
though entitled to the whole rent of the land, gave away one-tenth 
of it to individuals, retaining the other nine-tenths, might those 
nine-tenths be considered as an unequal and unjust tax on the 
grantees of the tenth. That a person owns part of the rent, does 
not make the rest of it his just right, injuriously withheld from 
him. The landlords originally held their estates subject to feudal 
burthens, for which the present land-tax is an exceedingly small 
equivalent, and for their relief from which they should have been 
required to pay a much higher price. All who have bought land 
since the tax existed have bought it subject to the tax. There is 
not the smallest pretence for looking upon it as a payment exacted 
from the existing race of landlords. 

These observations are apphcable to a land-tax, only in so far 
as it is a pecuHar tax, and not when it is merely a mode of levying 
from the landlords the equivalent of what is taken from other 
classes. In France, for example, there are [1848] pecuHar taxes on 
other kinds of property and income (the mohilier and the patente) ; 
and supposing the land-tax to be not more than equivalent to these, 
there would be no ground for contending that the state had reserved 
to itself a rent-charge on the land. But wherever and in so far as 
income derived from land is prescriptively subject to a deduction 
for pubHc purposes beyond the rate of taxation levied on other 
incomes, the surplus is not properly taxation, but a share of the 
proporty in the soil reserved by the state. In this country there 
are no pecuHar taxes on other classes, corresponding to, or intended 
to countervail, the land-tax. The whole of it, therefore, is not 
taxation, but a rent-charge, an-d is as if the state had retained, not a 
portion of the rent, but a portion of the land. It is no more a burthen 
on the landlord, than the share of one joint tenant is a burthen on 
the other. The landlords are entitled to no compensation for it, 
nor have they any claim to its being allowed for, as part of theii 



GENERAL PRINCIPLES OF TAXATION 821 

taxes. Its continuance on the existing footing is no infringement 
of the principle of Equal Taxation.* 

We shall hereafter consider, in treating of Indirect Taxation, 
how far, and with what modifications, the rule of equality is apphc- 
able to that department. 

§ 7. In addition to the preceding rules, another general rule of i 
taxation is sometimes laid down, namely, that it should fall on I W-^ 
income, and not on capital. That taxation should not encroach ^ 
upon the amount of the national capital, is indeed of the greatest 
importance ; but this encroachment, when it occurs, is not so much 
a consequence of any particular mode of taxation, as of its excessive 
amount. Over-taxation, carried to a sufficient extent, is quite 
capable of ruining the most industrious community, especially 
when it is in any degree arbitrary, so that the payer is never certain 
how much or how little he shall be allowed to keep ; or when it is 
BO laid on as to render industry and economy a bad calculation. 
But if these errors be avoided, and the amount of taxation be not 
greater than it is at present even in the most heavily taxed country 
of Europe, there is no danger lest it should deprive the country of a 
portion of its capital. 

To provide that taxation shall fall entirely on income, and not 
at all on capital, is beyond the power of any system of fiscal arrange- 
ments. There is no tax which is not partly paid from what would 
otherwise have been saved ; no tax, the amount of which, if remitted, 
would be wholly employed in increased expenditure, and no part 
whatever laid by as an additional capital. All taxes, therefore, are 
in some sense partly paid out of capital ; and in a poor country it 
is impossible to impose any tax which will not impede the increase 
of the national wealth. But in a country where capital abounds, 
and the spirit of accumulation is strong, this effect of taxation is 
scarcely felt. Capital having reached the stage in which, were_it 
not for a perpetual succession of improvements in production, any 
further increase would soon be stopped — and having so strong_a 
tendency even to outrun those improvements, that profits are only 
kept above the minimum by emigration of capital, or by a periodic 

* [1849] The same remarks obviously apply to those local taxes, of the 
peculiar pressure of which on landed property so much has been said by the 
remnant of the Protectionists. As much of these burthens as is of old standing, 
ought to be regarded as a prescriptive deduction or reservation, for public 
purposes, of a portion of the rent. And any recent additions have either been 
incurred for the benefit of the owners of landed property, or occasioned by their 
fault : in neither case giving them any just ground of complaint. 



822 BOOK V. CHAPTER II. § 7 

sweep called a commercial crisis^ to take from capital by taxation 
what emigration would remove, or a commercial crisis destroy, is 
only to do what either of those causes would have done, namely, to 
make a clear space for further saving. 

I cannot, therefore, attach any importance, in a wealthy country, 
to the objection made against taxes on legacies and inheritances, 
that they are taxes on capital. It is perfectly true that they are so. 
As Ricardo observes, if 100?. are taken from any one in a tax on 
houses or on wine, he will probably save it, or a part of it, by living 
in a cheaper house, consuming less wine, or retrenching from some 
other of his expenses ; but if the same sum be taken from him 
because, he has received a legacy of lOOOZ., he considers the legacy as 
only 900Z., and feels no more inducement than at any other time 
(probably feels rather less inducement) to economize in his expendi- 
ture. The tax, therefore, is wholly paid out of capital : and there 
are countries in which this would be a serious objection. But in 
the first place, the argument cannot apply to any country which 
has a national debt, and devotes any portion of revenue to paying 
it off ; since the produce of the tax, thus applied, still remains 
capital, and is merely transferred from the tax-payer to the fund- 
holder. But the objection is never appUcable in a country which 
increases rapidly in wealth. The amount which would be derived, 
even from a very high legacy duty, in each year, is but a small 
fraction ofl:he annual increase of capital in such a country ; and its 
abstraction would but make room for saving to an equivalent amount ; 
while the effect of not taking it, is to prevent that amount of saving, 
or cause the savings, when made, to be sent abroad for investment. 
A country which, like England, accumulates capital not only for 
itself, but for half the world, may be said to defray the whole of its 
pubHc expenses from its overflowings ; and its wealth is probably 
at this moment as great as if it had no taxes at all. What its taxes 
really do is, to subtract from its means, not of production, but of 
enjoyment ; since whatever any one pays in taxes, he could, if it 
were not taken for that purpose, employ in indulging his ease, or 
in gratifying some want or taste which at present remains un- 
satisfied. 



CHAPTER III 

OF DIRECT TAXES 

5 1. Taxes are either direct or indirect. A direct tax is one 
which is demanded from the very persons who, it is intended or 
desired, should pay it. Indirect taxes are those which are demanded 
from one person in the expectation and intention that he shall in- 
demnify himself at the expense of another : such as the excise or 
customs. The producer or importer of a commodity is called upon 
to pay a tax on it, not with the intention to levy a peculiar con- 
tribution upon him, but to tax through him the consumers of the 
commodity, from whom it is supposed that he wiU recover the 
amount by means of an advance in price. 

Direct taxes are either on income, or on expenditure. Most 
taxes on expenditure are indirect, but some are direct, being im- 
posed not on the producer or seller of an article, but immediately 
on the consumer. A house-tax, for example, is a direct tax on 
expenditure, if levied, as it usually is, on the occupier of the house. 
If levied on the builder or owner, it would be an indirect tax. A 
window-tax is a direct tax on expenditure ; so are the taxes on horses 
and carriages, and the rest of what are called the assessed taxes. 

The sources of income are rent, profits, and wages. This in- 
cludes every sort of income, except gift or plunder. Taxes may be 
laid on any one of the three kinds of income, or an uniform tax on 
all of them. We will consider these in their order. 

§ 2. A tax on rent falls whoUy on the landlord. There are no 
means by which he can shift the burthen upon any one else. It 
does not affect the value or price of agricultural produce, for this is 
determined by the cost of production in the most unfavourable 
circumstances, and in those circumstances, as we have so often 
demonstrated, no rent is paid. A tax on rent, therefore, has no 



\ 



824 BOOK V. CHAPTER 111. § 3 

effect, other than its obvious one. It merely takes so much from 
the landlord, and transfers it to the state. 

This, however, is, in strict exactness, only true of the rent 
which is the result either of natural causes, or of improvements 
made by tenants. When the landlord makes improvements which 
increase the productive power of his land, he is remunerated for them 
by an extra payment from the tenant ; and this payment, which to 
the landlord is properly a profit on capital, is blended and con- 
founded with rent ; which indeed it really is, to the tenant, and in 
respect of the economical laws which determine its amount. A tax 
on rent, if extending to this portion of it, would discourage landlords 
from making improvements : but it does not follow that it would 
raise the price of agricultural produce. The same improvements 
might be made with the tenant's capital, or even with the land- 
lord's if lent by him to the tenant ; provided he is wilUng to give 
the tenant so long a lease as will enable him to indemnify himself 
before it expires. But whatever hinders improvements from being 
made in the manner in which people prefer to make them, will often 
prevent them from being made at all : and on this account a tax 
on rent would be inexpedient, unless some means could be devised of 
excluding from its operation that portion of the nominal rent which 
may be regarded as landlord's profit. This argument, however, 
is not needed for the condemnation of such a tax. A peculiar tax 
on the income of any class, not balanced by taxes on other classes, 
is a violation of justice, and amounts to a partial confiscation. 1 
have already shown grounds for excepting from this censure a tax 
which, sparing existing rents, should content itself with appropriating 
a portion of any future increase arising from the mere action of 
natural causes. But even this could not be justly done, without 
offering as an alternative the market price of the land. In the case 
of a tax on rent which is not pecuUar, but accompanied by an 
equivalent tax on other incomes, the objection grounded on its 
reaching the profit arising from improvements is less appUcable : 
since, profits being taxed as well as rent, the profit which assumes 
the form of rent is liable to its share in common with other profits ; ^ 
but since profits altogether ought, for reasons formerly stated, to 
be taxed somewhat lower than rent properly so called, the objection 
is only diminished, not removed. 

§ 3. A tax on profits, like a tax on rent, must, at least in its 
^ [Remaining words of the paragraph added in 4th ed. (1857).] 



DIRECT TAXES 825 

immediate operation, fall wholly on the payer. All profits being 
alike affected, no relief can be obtained by a change of employment. 
If a tax were laid on the profits of any one branch of productive 
employment, the tax would be virtually an increase of the cost of 
production, and the value and price of the article would rise accord- 
ingly ; by which the tax would be thrown upon the consumers of 
the commodity, and would not affect profits. But a general and 
equal tax on all profits would not affect general prices, and would 
fall, at least in the first instance, on capitahsts alone. 

There is, however, an ulterior effect, which, in a rich and prosper- 
ous country, requires to be taken into account. When the capital 
accumulated is so great and the rate of annual accumulation so 
rapid, that the country is only kept from attaining the stationary 
state by the emigration of capital, or by continual improvements in 
production ; any circumstance which virtually lowers the rate of 
profit cannot be without a decided influence on these phenomena. 
It may operate in different ways. The curtailment of profit, and 
the consequent increased difficulty in making a fortune or obtaining 
a subsistence by the employment of capital, may act as a stimulus 
to inventions, and to the use of them when made. If improvement3 
in production are much accelerated, and if these improvements 
cheapen, directly or indirectly, any of the things habitually con- 
sumed by the labourer, profits may rise, and rise sufficiently to make 
up for all that is taken from them by the tax. In that case the 
tax will have been reahzed without loss to any one, the produce of 
the country being increased by an equal, or what would in that case 
be a far greater, amount. The tax, however, must even in this case 
be considered as paid from profits, because the receivers of profits 
are those who would be benefited if it were taken off. 

But though the artificial abstraction of a portion of profits 
would have a real tendency to accelerate improvements in pro- 
duction, no considerable improvements might actually result, or 
only of such a kind as not to raise general profits at all, or not to 
raise them so much as the tax had diminished them. If so, the rate 
of profit would be brought closer to that practical minimum to 
which it is constantly approaching : and this diminished return to 
capital would either give a decided check to further accumulation, 
or would cause a greater proportion than before of the annual in- 
crease to be sent abroad, or wasted in unprofitable speculations. At 
its first imposition the tax falls wholly on profits : but the amount 
of increase of capital, which the tax prevents, would, if it had been 



826 BOOK V. CHAPTER III. § 3 

allowed to continue, have tended to reduce profits to the same 
level ; and at every period of ten or twenty years there will be 
found less difference between profits as they are, and profits as 
they would in that case have been : until at last there is no difference, 
and the tax is thrown either upon the labourer or upon the landlord. 
The real effect of a tax on profits is to make the country possess, at 
any given period, a smaller capital and a smaller aggregate pro- 
duction, and to make the stationary state be attained earher, and 
with a smaller sum of national wealth. It is possible that a tax on 
profits might even diminish the existing capital of the country. If 
the rate of profit is already at the practical minimum, that is, at the 
point at which all that portion of the annual increment which would 
tend to reduce profits is carried off either by exportation or by specu- 
lation ; then if a tax is imposed which reduces profits still lower, the 
same causes which previously carried off the increase would pro- 
bably carry off a portion of the existing capital. A tax on profits is 
thus, in a state of capital and accumulation like that in England, 
extremely detrimental to the national wealth. And this effect is not 
confined to the case of a pecuHar, and therefore intrinsically unjust, 
tax on profits. The mere fact that profits have to bear their share 
of a heavy general taxation, tends, in the same manner as a pecuUar 
tax, to drive capital abroad, to stimulate imprudent speculations 
by diminishing safe gains, to discourage further accumulation, and 
to accelerate the attainment of the stationary state. This is thought 
to have been the principal cause of the decline of Holland, or rather 
of her having ceased to make progress. 

Even in countries which do not accumulate so fast as to be 
always within a short interval of the stationary state, it seems im- 
possible that, if capital is accumulating at all, its accumulation 
should not be in some degree retarded by the abstraction of a portion 
of its profit ; and unless the effect in stimulating improvements be 
a full counter-balance, it is inevitable that a part of the burthen 
will be thrown off the capitaHst, upon the labourer or the landlord. 
One or other of these is always the loser by a diminished rate of 
accumulation. If population continues to increase as before, the 
labourer suffers : if not, cultivation is checked in its advance, and 
the landlords lose the accession of rent which would have accrued 
to them. The only countries in which a tax on profits seems hkely 
to be permanently a burthen on capitalists exclusively, are those 
I in which capital is stationary, because there is no new accumulation. 
In such countries the tax might not prevent the old capital from 



DIRECT TAXES 827 

being kept up through habit, or from unwillingnese to submit to 
impoverishment, and so the capitaHst might continue to bear the 
whole of the tax. It is seen from these considerations that the effects 
of a tax on profits are much more complex, more various, and in 
some points more uncertain, than writers on the subject have 
commonly supposed. 

§ 4. We now turn to Taxes on Wages. The incidence of these 
is very different, according as the wages taxed are those of ordinary 
unskilled labour, or are the remuneration of such skilled or privileged 
employments, whether manual or intellectual, as are taken out of 
the sphere of competition by a natural or conferred monopoly. 

I have already remarked, that in the present low state of popular 
education, all the higher grades of mental or educated labour are at 
a monopoly price ; exceeding the wages of common workmen in 
a degree very far beyond that which is due to the expense, trouble, 
and loss of time required in qualifying for the employment. Any 
tax levied on these gains, which still leaves them above (or not 
below) their just proportion, falls on those who pay it ; they have no 
means of relieving themselves at the expense of any other class. The 
same thing is true of ordinary wages, in cases like that of the United 
States, or of a new colony, where, capital increasing as rapidly as 
population can increase, wages are kept up by the increase of 
capital, and not by the adherence of the labourers to a fixed standard 
of comforts. In such a case some deterioration of their condition, 
whether by a tax or otherwise, might possibly take place without 
checking the increase of population. The tax would in that case 
fall on the labourers themselves, and would reduce them prematurely 
to that lower state to which, on the same supposition with regard 
to their habits, they would in any case have been reduced ultimately, 
by the inevitable diminution in. the rate of increase of capital, 
through the occupation of all the fertile land. 

Some wiU object that, even in this case, a tax on wages cannot 
be detrimental to the labourers, since the money raised by it, being 
expended in the country, comes back to the labourers again through 
the demand for labour. The fallacy, however, of this doctrine has 
been so completely exhibited in the First Book,* that I need do little 
more than refer to that exposition. It was there shown that funds 
expended unproductively have no tendency to raise or keep up 
wages, unless when expended in the direct purchase of labour. If 

* Supra, pp. 79-88. 



828 BOOK V. CHAPTER III. § 4 

the government took a tax of a shilling a week from every labourer, 
and laid it all out in hiring labourers for military service, public 
works, or the like, it would, no doubt, indemnify the labourers as a 
class for all that the tax took from them. That would really be 
" spending the money among the people." But if it expended the 
whole in buying goods, or in adding to the salaries of employes who 
bought goods with it, this would not increase the demand for labour, 
or tend to raise wages. Without, however, reverting to general 
principles, we may rely on an obvious reductio ad dbsurdum. If 
to take money from the labourers and spend it in commodities is 
giving it back to the labourers, then, to take money from other 
classes, and spend it in the same manner, must be giving it to the 
labourers ; consequently, the more a government takes in taxes, 
the greater will be the demand for labour, and the more opulent the 
condition of the labourers. A proposition the absurdity of which no 
one can fail to see. 

In the condition of most communities, wages are regulated by 
the habitual standard of living to which the labourers adhere, and 
on less than which they will not multiply. Where there exists , 
such a standard, a tax on wages will indeed for a time be borne by 
the labourers themselves ; but unless this temporary depression has 
the effect of lowering the standard itself, the increase of population 
will receive a check, which will raise wages, and restore the labourers 
to their previous condition. On whom, in this case, will the tax fall ? 
According to Adam Smith, on the community generally, in their 
character of consumers ; since the rise of wages, he thought, would 
raise general prices. We have seen, however, that general prices 
depend on other causes, and are never raised by any circumstance 
which affects all kinds of .productive employment in the same 
manner and degree. A rise of wages occasioned by a tax, must, 
like any other increase of the cost of labour, be defrayed from profits. 
To attempt to tax day-labourers, in an old country, is merely to 
impose an extra tax upon all employers of common labour ; unless 
the tax has the much worse effect of permanently lowering the 
standard of comfortable subsistence in the minds of the poorest 
class. 

We find in the preceding considerations an additional argument 
for the opinion already expressed, that direct taxation should stop 
short of the class of incomes which do not exceed what is necessary 
for healthful existence. These very small incomes are mostly \ 
derived from manual labour ; and, as we now see, any tax imposed on 



DIRECT TAXES 829 

these either permanently degrades the habits of the labouring class 
or falls on profits and burthens capitalists with an indirect tax, in 
addition to their share of the direct taxes ; which is doubly objec- 
tionable, both as a violation of the fundamental rule of equality, 
and for the reasons which, as already shown, render a peculiar tax 
on profits detrimental to the pubUc wealth, and consequently to the 
means which society possesses of paying any taxes whatever. 

§ 5. We now pass, from taxes on the separate kinds of income 
to a tax attempted to be assessed fairly upon all kinds ; in othei 
words, an Income Tax. The discussion of the conditions necessary 
for making this tax consistent with justice, has been anticipated in 
the last chapter. We shall suppose, therefore, that these conditions 
are complied with. They are, first, that incomes below a certain 
amount should be altogether untaxed. This minimum should not 
be higher than the amount which suffices for the necessaries of the 
existing population. The exemption from the present [1857] income 
tax of all incomes under 1001. a year, and the lower percentage 
formerly levied on those between 100?. and 150L, are only defen- 
sible on the ground that almost aU the indirect taxes press more 
heavily on incomes between 50L and 150?. than on any others 
whatever.! The second condition is, that incomes above the limit 
should be taxed only in proportion to the surplus by which they 
exceed the limit. 2 Thirdly, that all sums saved from income and 
invested, should be exempt from the tax : or if this be found 
impracticable, that life incomes, and incomes from business and 
professions, should be less heavily taxed than inheritable incomes, 
in a degree as nearly as possible equivalent to the increased need 
of economy arising from their terminable character : allowance 
being also made, in the case of variable incomes, for their precari- 
ousness. 

An income-tax, fairly assessed on these principles, would be, 
in point of justice, the least exceptionable of all taxes. Th^ objection 
to it, in the present low state of pubUc morahty,^ is the impossibihty 
of ascertaining the real incomes of the contributors. The supposed 

^ [So smce the 4th ed. (1857). The original ran : ** on the gr'^und that 
some taxes on necessaries are still kept up, and that almost all the existing taxes 
on indulgences press more heavily " &c.] 

2 [The third condition was altered in its wording in the 3rd ed. (1P62), to 
give effect to the arguments introduced in that edition in the preceding chapter.] 

2 [So since the 3rd ed. The original ran : " The objection to it, which, with 
much regret I cannot help regarding as insuperable " &c.] 



830 BOOK V. CHAPTER III. § 5 

hardship of compelling people to disclose the amount of their 
incomes, ought not, in my opinion, to count for much. One of the 
social evils of this country is the practice, amounting to a custom, 
of maintaining, or attempting to maintain, the appearance to the 
world of a larger income than is possessed ; and it would be far better 
for the interest of those who yield to this weakness, if the extent 
of their means were universally and exactly known, and the tempta- 
tion removed to expending more than they can afford, stinting real 
wants in order to make a false show externally. At the same 
time, the reason of the case, even on this point, is not so exclusively 
on one side of the argument as is sometimes supposed. So long as 
the vulgar of any country are in the debased state of mind which this 
national habit presupposes — so long as their respect (if such a 
word can be appHed to it) is proportioned to what they suppose to 
be each person's pecuniary means — it may be doubted whether 
anything which would remove all uncertainty as to that point, would 
not considerably increase the presumption and arrogance of the 
vulgar rich, and their insolence towards those above them in mind 
and character, but below them in fortune. 

Notwithstanding, too, what is called the inquisitorial nature of 
the tax, no amount of inquisitorial power which would be tolerated 
by a people the most disposed to submit to it, could enable the 
revenue officers to assess the tax from actual knowledge of the 
circumstances of contributors. Rents, salaries, annuities, and ali 
fixed incomes, can be exactly ascertained. But the variable gains 
of professions, and still more the profits of business, which the 
person interested cannot always himself exactly ascertain, can still 
less be estimated with any approach to fairness by a tax-collector. 
The main rehance must be placed, and always has been placed, on 
the returns made by the person himself. No production of accounts 
is of much avail, except against the more flagrant cases of falsehood ; 
and even against these the check is very imperfect, for if fraud is 
intended, false accounts can generally be framed which it will baffle 
any means of inquiry possessed by the revenue officers to detect : 
the easy resource of omitting entries on the credit side being often 
sufficient without the aid of fictitious debts or disbursements. 
The tax, therefore, on whatever principles of equahty it may be 
imposed, is in practice unequal in one of the worst ways, falHng 
heaviest on the most conscientious. The unscrupulous succeed in 
evading a great proportion of what they should pay ; even 
persons of integrity in their ordinary transactions are tempted to 



DIRECT TAXES 831 

palter with their conscienceSj at least to the extent of deciding in 
their own favour all points on which the smallest doubt or discussion 
- could arise : while the strictly veracious may be made to pay more 
than the state intended, by the powers of arbitrary- assessment 
necessarily intrusted to the Commissioners, as the last defence against 
the tax-payer's power of concealment. 

It is to be feared, therefore, that the .fairness which belongs 
to the principle of an income tax, cannot i be made to attach to it 
in practice : and that this tax, while apparently the most just of all 
modes of raising a revenue, is in effect more unjust than many others 
which are prima facie more objectionable. This consideration would 
lead us to concur in the opinion which, imtil of late, has usually 
prevailed — that direct taxes on income should be reserved as an 
extraordinary resource for great national emergencies, in which 
the necessity of a large additional revenue overrules all objections. 

The difficulties of a fair income tax have elicited a proposition 
for a direct tax of so much per cent, not on income, but on expendi- 
ture ; the aggregate amount of each person's expenditure being 
ascertained, as the amount of income now is, from statements 
furnished by the contributors themselves. The author of this 
suggestion, Mr. Eevans, in a clever pamphlet on the subject,* 
contends that the returns which persons would furnish of their 
expenditure would be more trustworthy than those which they 
now make of their income, inasmuch as expenditure is in its own 
nature more public than income, and false representations of it 
more easily detected. He cannot, I think, have sufficiently con- 
sidered, how few of the items in the annual expenditure of most 
famiUes can be judged of with any approximation to correctness from 
the external signs. The only security would still be the veracity 
of individuals, and there is no reason for supposing that their 
statements would be more trustworthy on the subject of their 
expenses than that of their revenues ; especially as, the expenditure 
of most persons being composed of many more items than their 
income, there would be more scope for concealment and suppression 
in the detail of expenses than even of receipts. 

The taxes on expenditure at present in force, either in this or in 
other countries, fall only on particular kinds of expenditure, and 

1 [" Cannot " replacing in the 3rd ed. (1862) " can never " of the original 
text.] 

* A Percentage Tax on Domestic Expenditure to supply the whole of the 
Public Revenue. By John Revans. Pubhshed by Hatchard, in 1847. 



832 BOOK V. CHAPTER III. § 6 

differ no otlierwise from taxes on commodities than in being paid 
directly by tbe person who consumes or uses the article, instead 
of being advanced by the producer or seller, and reimbursed in the 
price. The taxes on horses and carriages, on dogs, on servants, are 
all of this nature. They evidently fall on the persons from whom 
they are levied — those who used the commodity taxed. A tax of a 
similar description, and more important, is a house-tax ; which 
must be considered at somewhat greater length. 

§ 6. The rent of a house consists of two parts, the ground-rent, 
and what Adam Smith calls the building-rent. The first is deter- 
mined by the ordinary principles of rent. It is the remuneration 
given for the use of the portion of land occupied by the house 
and its appurtenances ; and varies from a mere equivalent for the 
rent which the ground would afiord in agriculture to the monopoly 
rents paid for advantageous situations in populous thoroughfares. 
The rent of the house itself, as distinguished from the ground, is the 
equivalent given for the labour and capital expended on the building. 
The fact of its being received in quarterly or half-yearly payments 
makes no difference in the principles by which it is regulated. It 
comprises the ordinary profit on the builder's capital, and an annuity, 
sufficient at the current rate of interest, after paying for all repairs 
chargeable on the proprietor, to replace the original capital by the 
time the house is worn out, or by the expiration of the usual term 
of a building lease. 

A tax of so much per cent on the gross rent falls on both those 
portions aUke. The more highly a house is rented, the more it pays 
to the tax, whether the quality of the situation or that of the house 
itself is the cause. The incidence, however, of these two portions of 
the tax must be considered separately. 

As much of it as is a tax on building-rent, must ultimately fall 
on the consumer, in other words the occupier. For as the profits of 
building are already not above the ordinary rate, they would, if the 
tax fell on the owner and not on the occupier^ become lower than 
the profits of untaxed employments, and houses would not be 
built. It is probable, however, that for some time after the tax 
was first imposed, a great part of it would fall, not on the renter, 
but on the owner of the house. A large proportion of the consumers 
either could not afiord, or would not choose, to pay their former rent 
with the tax in addition, but would content themselves with a lower 
scale of accommodation. Houses therefore would be for a time in 



DIRECT TAXES S33 

excess of the demand. The consequence of such excess, in the case 
of most other articles, would be an almost immediate diminution of 
the supply : but so durable a commodity as houses does not rapidly 
diminish in amount. New buildings indeed, of the class for which 
the demand had decreased, would cease to be erected, except for 
special reasons ; but in the meantime the temporary superfluity 
would lower rents, and the consumers would obtain perhaps nearly 
the same accommodation as formerly for the same aggregate pay- 
ment, rent and tax together. By degrees, however, as the existing 
houses wore out, or as increase of population demanded a greater 
supply, rents would again rise ; until it became profitable to recom- 
mence building, which would not be until the tax was wholly 
transferred to the occupier. In the end, therefore, the occupier 
bears that portion of a tax on rent which falls on the payment 
made for the house itself, exclusively of the ground it stands on. 

The case is partly different with the portion which is a tax on 
ground-rent. As taxes on rent, properly so called, fall on the 
landlord, a tax on ground-rent, one would suppose, must fall on the 
ground landlord, at least after the expiration of the building lease. 
It will not, however, fall wholly on the landlord, unless with the tax 
on ground-rent there is combined an equivalent tax on agricultural 
rent. The lowest rent of land let for building is very little above 
the rent which the same ground would yield in agriculture : since it is 
reasonable to suppose that land, unless in case of exceptional circum- 
stances, is let or sold for building as soon as it is decidedly worth 
more for that purpose than for cultivation. If, therefore, a tax 
were laid on ground-rents without being also laid on agricultural 
rents, it would, unless of trifling amount, reduce the return from 
the lowest ground-rents below the ordinary return from land, and 
would check further building quite as effectually as if it were a tax 
on building-rents, until either the increased demand of a growing 
population, or a diminution of supply by the ordinary causes of 
destruction, had raised the rent by a full equivalent for the tax. 
But whatever raises the lowest ground-rents, raises all others, since 
each exceeds the lowest by the market value of its peculiar 
advantages. ^ If , therefore, the tax on ground-rents were a fixed 

^ [The remainder of this paragraph, together with the next, appeared first 
in the 4th ed. (1857), and the following passage of the original (1848) was 
removed : " There is thus no difference between the two component elements 
of house-rent, in respect to the incidence of the tax. Both alike fall ultimately 
on the occupier : while, in both alike, if the occupier in consequence reduces 
his demand by contenting himself with inferior accommodation, that is, if h© 

2 s 



834 BOOK V. CHAPTER III. § 8 

sum per square foot, the more valuable situations paying no more 
than those least in request, this fixed payment would ultimately 
fall on the occupier. Suppose the lowest ground-rent to be lOl. 
per acre, and the highest 1000?., a tax of 11. per acre on ground- 
rents would ultimately raise the former to llL, and the latter 
consequently to lOOlZ., since the difierence of value between the two 
situations would be exactly what it was before : the annual pound, 
therefore, would be paid by the occupier. But a tax on ground- 
rent is supposed to be a portion of a house-tax, which is not a fixed 
payment, but a percentage on the rent. The cheapest site, therefore, 
being supposed as before to pay ll., the dearest would pay 100?., of 
which only the IL could be thrown upon the occupier, since the 
rent would still be only raised to 1001 L Consequently, 99L of the 
lOOL levied from the expensive site would fall on the ground-land- 
lord. A house-tax thus requires to be considered in a double 
aspect, as a tax on all occupiers of houses, and a tax on ground-rents. 

In the vast majority of houses, the ground-rent forms but a 
small proportion of the annual payment made for the house, and 
nearly all the tax falls on the occupier. It is only in exceptional 
cases, like that of the favourite situations in large towns, that the 
predominant element in the rent of the house is the ground-rent ; 
and among the very few kinds of income which are fit subjects for 
peculiar taxation, these ground-rents hold the principal place, being 
the most gigantic example extant of enormous accessions of riches 
acquired rapidly, and in many cases unexpectedly, by a few families, 
from the mere accident of their possessing certain tracts of land, 
without their having themselves aided in the acquisition by the 
smallest exertion, outlay, or risk. So far therefore as a house-tax 
falls on the ground-landlord, it is liable to no valid objection. 

In so far as it falls on the occupier, if justly proportioned to the 
value of the house, it is one of the fairest and most unobjectionable of 
all taxes. No part of a person's expenditure is a better criterion of 
his means, or bears, on the whole, more nearly the same proportion 
to them. A house-tax is a nearer approach to a fair income tax 
than a direct assessment on income can easily be ; having the 
great advantage, that it makes spontaneously all the allowances 
which it is so difiB.cult to make, and so impracticable to make exactly, 

prefers saving his tax from house-rent to saving it from other parts of his 
expenditure, he indirectly lowers ground-rent, or retards its increase ; just as 
a diminished consumption of agricultural produce, by making cultivation 
retrograde, would lower ordinary rent."] 



DIRECT TAXES 835 

in assessing an income tax : for if what a person pays in house-rent 
is a test of anything, it is a test not of what he possesses, but of 
what he thinks he can afiord to spend. The equality of this tax 
can only be seriously questioned on two grounds. The first is, 
that a miser may escape it. This objection applies to all taxes on 
expenditure : nothing but a direct tax on income can reach a miser. 
But as misers do not now hoard their treasure, but invest it in 
productive employments, it not only adds to the national wealth, 
and consequently to the general means of paying taxes, but the 
payment claimable from itself is only transferred from the principal 
sum to the income afterwards derived from it, which pays taxes 
as soon as it comes to be expended. The second objection is, that a 
person may require a larger and more expensive house, not from 
having greater means but from having a larger family. Of this, 
however, he is not entitled to complain ; since having a large family 
is at a person's own choice : and, so far as concerns the public interest, 
is a thing rather to be discouraged than promoted.* 

A large portion of the taxation of this country is raised by a 
house-tax. The parochial taxation of the towns entirely, and of the 
rural districts partially, consists of an assessment on house-rent. 
The window-tax, which was also a house-tax, but of a bad kind, 
operating as a tax on light, and a cause of deformity in building, was 
exchanged in 1851 for a house-tax properly so called, but on a 
much lower scale than that which existed previously to 1834. It 
•is to be lamented that the new tax retains the unjust principle on 

* [1852] Another common objection is that large and expensive accommo- 
dation is often required, not as a residence, but for business. But it is an 
admitted principle that buildings or portions of buildings occupied exclusively 
for business, such as shops, warehouses, or manufactories, ought to be exempted 
from house-tax. The plea that persons in business may be compelled to live 
in situations, such as the great thoroughfares of London, where house-rent is 
at a monopoly rate, seems to me unworthy of regard : since no one does so 
but because the extra profit, which he expects to derive from the situation, is 
more than an equivalent to him for the extra cost. But in any case, the bulk 
of the tax on this extra rent will not fall on him, but on the ground-landlord. 

[1848] It has been also objected that house-rent in the rural districts is 
much lower than in towns, and lower in some towns and in some rural districts 
than in others : so that a tax proportioned to it would have a corresponding 
inequality of pressure. To this, however, it may be answered, that in places 
where house-rent is low persons of the same amount of income usually live in 
larger and better houses, and thus expend in house-rent more nearly the same 
proportion of their incomes than might at first sight appear. Or if not, the 
probability will be, that many of them live in those places precisely because 
they are too poor to live elsewhere, and have therefore the strongest claim to 
be taxed lightly. In some cases, it is precisely because the people are poor that 
house-rent remains low. 



836 BOOK V. CHAPTER III. § 6 

wMch the old house-tax was assessed, and which contributed quite 
as much as the selfishness of the middle classes to produce the 
outcry against the tax. The pubHc were justly scandaUzed on 
learning that residences like Chatsworth or Belvoir were only rated 
on an imaginary rent of perhaps 2001. a year, under the pretext 
that, owing to the great expense of keeping them up, they could 
not be let for more. Probably, indeed, they could not be let even 
for that, and if the argument were a fair one, they ought not to 
have been taxed at all. But a house-tax is not intended as a tax 
on incomes derived from houses, but on expenditure incurred for 
them. The thing which it is wished to ascertain is what a house 
costs to the person who lives in it, not what it would bring in if let to 
some one else. When the occupier is not the owner, and does not 
hold on a repairing lease, the rent he pays is the measure of what 
the house costs him : but when he is the owner, some other measure 
must be sought. A valuation should be made of the house, not 
at what it would sell for, but at what would be the cost of rebuilding 
it, and this valuation might be periodically corrected by an allowance 
for what it had lost in value by time, or gained by repairs and 
improvements. The amount of the amended valuation would form 
a principal sum, the interest of which, at the current price of the 
pubHc funds, would form the annual value at which the building 
should be assessed to the tax. 

As incomes below a certain amount ought to be exempt from 
income-tax, so ought houses below a certain value from house-tax, 
on the universal principle of sparing from all taxation the absolute 
necessaries of healthful existence. In order that the occupiers of 
lodgings, as well as of houses, might benefit, as in justice they ought, 
by this exemption, it might be optional with the owners to have 
every portion of a house which is occupied by a separate tenant 
valued and assessed separately, as is now usually the case with 
chambers. 



CHAPTER IV 

OS" TAXES ON COMMODITIES 

§ 1, By taxes on commodities are commonly meant those 
which are levied either on the producers or on the carriers or dealers 
who intervene between them and the final purchases for consump- 
tion. Taxes imposed directly on the consumers of particular com- 
modities, such as a house-tax, or the tax in this country on horses 
and carriages, might be called taxes on commodities, but are not ; 
the phrase being by custom confined to indirect taxes — those which 
are advanced by one person, to be, as is expected and intended, 
reimbursed by another. Taxes on commodities are either on pro- 
duction within the country, or on importation into it, or on convey- 
ance or sale within it ; and are classed respectively as excise, 
customs, or toUs and transit duties. To whichever class they 
belong, and at whatever stage in the progress of the community 
they may be imposed, they are equivalent to an increase of the 
cost of production ; using that term in its most enlarged sense, 
which includes the cost of transport and distribution, or, in 
common phrase, of bringing the commodity to market. 

When the cost of production is increased artificially by a tax, 
the efiect is the same as when it is increased by natural causes. 
If only one or a few commodities are affected, their value and price 
rise, so as to compensate the producer or dealer for the pecuHar 
burthen ; but if there were a tax on all commodities, exactly pro- 
portioned to their value, no such compensation would be obtained : 
there would neither be a general rise of values, which is an absurdity, 
nor of prices, which depend on causes entirely different. There 
would, however, as Mr. M'Culloch has pointed out, be a disturbance 
of values, some falling, others rising, owing to a circumstance', the 
effect of which on values and prices we formerly discussed ; the 
different durability of the capital employed in different occupations. 
The gross produce of industry consists of two parts ; one portion 



838 BOOK V. CHAPTER IV. § % 

serving to replace the capital consumed, while the other portion is 
profit. Now equal capitals in two branches of production must 
have equal expectations of profit ; but if a greater portion of the 
one than of the other is fixed capital, or if that fixed capital is more 
durable, there will be a less consumption of capital in the year, 
and less will be required to replace it, so that the profit, if absolutely 
the same, will form a greater proportion of the annual returns. 
To derive from a capital of lOOOZ. a profit of lOOZ., the one producer 
may have to sell produce to the value of 1100?., the other only to 
the value of 500?. If on these two branches of industry a tax be 
imposed of five per cent o(? valorem^ the last will be charged only 
with 25?., the first with 55?. ; leaving to the one 75?. profit, to the 
other only 45?. To equahze, therefore, their expectation of profit, the 
one commodity must rise in price, or the other must fall, or both: 
commodities made chiefly by immediate labour must rise in value, 
as compared with those which are chiefly made by machinery. It 
is unnecessary to prosecute this branch of the inquiry any 
further. 

§ 2. A tax on any one commodity, whether laid on its pro- 
duction, its importation, its carriage from place to place, or its 
sale, and whether the tax be a fixed sum of money for a given 
quantity of the commodity, or an ad valorem duty, will, as a 
general rule, raise the value and price of the commodity by 
at least the amount of the tax. There are few cases in which 
it does not raise them by more than that amount. In the first 
place, there are few taxes on production on account of which it 
is not found or deemed necessary to impose restrictive regulations 
on the manufacturers or dealers, in order to check evasions of the 
tax. These regulations are always sources of trouble and annoyance, 
and generally of expense, for all of which, being pecuHar dis- 
advantages, the producers or dealers must have compensation in 
the price of their commodity. These restrictions also frequently 
interfere with the processes of manufacture, requiring the producer 
to carry on his operations in the way most convenient to the revenue, 
though not the cheapest or most efficient for purposes of production. 
Any regulations whatever, enforced by law, make it difficult for 
the producer to adopt new and improved processes. Further, the 
necessity of advancing the tax obHges producers and dealers to 
carry on their business with larger capitals than would otherwise 
be necessary, on the whole of which they must receive the ordinary 



TAXES ON COMMODITIES 839 

rate of profit, thougli a part only is eniployed in defraying fche real 
expenses of production or importation. The price of the article must 
be such as to afford a profit on more than its natural value, instead 
of a profit on only its natural value. A part of the capital of the 
country, in short, is not employed in production, but in advances 
to the state, repaid in the price of goods ; and the consumers must 
give an indemnity to the sellers, equal to the profit which they 
could have made on the same capital if really employed in pro- 
duction.* Neither ought it to be forgotten, that whatever renders 
a larger capital necessary in any trade or business Hmits the com- 
petition in that business ; and, by giving something Hke a monopoly 
to a few dealers, may enable them either to keep up the price 
beyond what would afford the ordinary rate of profit, or to obtain 
the ordinary rate of profit with a less degree of exertion for improving 
and cheapening their commodity. In these several modes, taxes 
on commodities often cost to the consumer, through the increased 
price of the article, much more than they bring into the treasury 
of the state. There is still another consideration. The higher 
price necessitated by the tax, almost always checks the demand 
for the commodity ; and since there are many improvements in 
production which, to make them practicable, require a certain 
extent of demand, such improvements are obstructed, and many 
of them prevented altogether. It is a well-known fact that the 
branches of production in which fewest improvements are made 
are those with which the revenue officer interferes ; and that nothing, 
in general, gives a greater impulse to improvements in the production 
of a commodity, than taking off a tax which narrowed the market 
for it. 

§ 3. Such are the effects of taxes on commodities, considered 
generally ; but as there are some commodities (those composing 
the necessaries of the labourer) of which the values have an influence 
on the distribution of wealth among different classes of the com- 
munity, it is requisite to trace the effects of taxes on those particular 
articles somewhat farther. If a tax be laid, say on corn, and the 

* [1865] It is true, this does not constitute, as at first sight it appears to 
do, a case of taking more out of the pockets of the people than the state re- 
ceives ; since, if the state needs the advance, and gets it in this manner, it can 
dispense with an equivalent amount of borrowing in stock or exchequer bills. 
But it is more economical that the necessities of the state should be supplied 
from the disposable capital in the hands of the lending class, than by an artificial 
addition to the expenses of one or several classes of producers or dealers. 



840 BOOK V. CHAPTER IV. § 3 

price rises in proportion to the tax, the rise of price may operate 
in two ways. First : it may lower the condition of the labouring 
classes; temporarily indeed it can scarcely fail to do so. If it 
diminishes their consumption of the produce of the earth, or makes 
them resort to a food which the soil produces more abundantly, and 
therefore more cheaply, it to that extent contributes to throw back 
agriculture upon more fertile lands or less costly processes, and to 
lower the value and price of corn ; which therefore ultimately 
settles at a price, increased not by the whole amount of the tax, 
but by only a part of its amount. Secondly, however, it may happen 
that the dearness of the taxed food does not lower the habitual 
standard of the labourer's requirements, but that wages, on the 
contrary, through an action on population, rise, in a shorter or 
longer period, so as to compensate the labourers for their portion of 
the tax ; the compensation being of course at the expense of profits. 
Taxes on necessaries must thus have one of two effects. Either 
they lower the condition of the labouring classes ; or they exact 
from the owners of capital, in addition to the amount due to the state 
on their own necessaries, the amount due on those consumed by the 
labourers. In the last case, the tax on necessaries, like a tax on 
wages, is equivalent to a peculiar tax on profits ; which is, like all 
other partial taxation, unjust, and is specially prejudicial to the 
increase of the national wealth. 

It remains to speak of the effect on rent. Assuming (what is 

usually the fact) that the consumption of food is not diminished, 

the same cultivation as before will be necessary to supply the wants 

of the community ; the margin of cultivation, to use Dr. Chalmers' 

expression, remains where it was ; and the same land or capital 

which, as the least productive, already regulated the value and 

price of the whole produce, will continue to regulate them. The 

effect which a tax on agricultural produce will have on rent, depends 

on its affecting or not affecting the difference between the return to 

this least productive land or capital, and the returns to other lands 

and capitals. Now this depends on the manner in which the tax 

is imposed. If it is an ad valorem tax, or, what is the same thing, a 

fixed proportion of the produce, such as tithe for example, it 

evidently lowers corn-rents. For it takes more corn from the 

better lands than from the worse ; and exactly in the degree in which 

they are better ; land of twice the productiveness paying twice as 

much to the tithe. Whatever takes more from the greater of two 

q^uantities than from the less, diminishes the difference between 



TAXES ON COMMODITIES 841 

them. The imposition of a tithe on corn would take a tithe also 
from corn-rent : for if we reduce a series of numbers by a tenth 
©ach, the difierences between them are reduced one-tenth. 

For example, let there be five quahties of land, which severally 
yield, on the same extent of ground, and with the same expenditure, 
100, 90, 80, 70, and 60 bushels of wheat ; the last of these being the 
lowest quahty which the demand for food renders it necessary to 
cultivate. The rent of these lands will be as follows : — 

p'oductg} 1«0 "ushels {t'2rS} l«»-60> » *« bushel. 
That producing 90 „ „ 90-60, or 30 

80 „ „ 80-60, or 20 

70 „ „ 70-60, or 10 

„ 60 „ „ no rent. 

Now let a tithe be imposed, which takes from these five pieces of 
land, 10, 9, 8, 7, and 6 bushels respectively, the fifth quality still 
being the one which regulates the price, but returning to the farmer, 
after payment of tithe, no more than 54 bushels : — 

pr'odudngjlOO ^-^^^^ ^-d^^^d to 90, { ^^'Jf^^ } 90 -54, or 36 bushels 

prSulgf^O '» " 81 „ 81 -54, or 27 ,. 

80 „ „ 72 „ 72-54, or 18 „ 

70 „ „ 63 „ 63-54, or 9 

and that producing 60 bushels, reduced to 54, will yield, as before, 
no rent. So that the rent of the first quality of land has lost four 
bushels ; of the second, three ; of the third, two ; and of the fourth, 
one : that is, each has lost exactly one-tenth. A tax, therefore, of 
a fixed proportion of the produce, lowers, in the same proportion, 
corn-rent. 

But it is only corn-rent that is lowered, and not rent estimated in 
money, or in any other commodity. For, in the same proportion as 
corn-rent is reduced in quantity, the corn composing it is raised in 
value. Under the tithe, 54 bushels will be worth in the market 
what 60 were before ; and nine-tenths will in all cases sell for as 
much as the whole ten-tenths previously sold for. The landlords 
will therefore be compensated in value and price for what they lose 
in quantity ; and will sufier only so far as they consume their rent 
in kind, or, after receiving it in money, expend it in agricultural 
produce : that is, they only sufier as consumers of agricultural 
produce, and in common with all the other consumers. Considered 



S42 BOOK V. CHAPTER IV. § 4 

as landlords, they have the same income as before ; the tithe, therefore, 
falls on the consumer, and not on the landlord. 

The same effect would be produced on rent, if the tax, instead of 
being a fixed proportion of the produce, were a fixed sum per quarter 
or per bushel. A tax which takes a shilling for every bushel, takes 
more shilHngs from one field than from another, just in proportion 
as it produces more bushels ; and operates exactly Hke tithe, except 
that tithe is not only the same proportion on all lands, but is also 
the same proportion at all times, while a fixed sum of money per 
bushel will amount to a greater or a less proportion, according as 
corn is cheap or dear. 

There are other modes of taxing agriculture, which would affect 
rent differently. A tax proportioned to the rent would fall wholly 
on the rent, and would not at all raise the price of corn, which is 
regulated by the portion of the produce that pays no rent. A fixed 
tax of so much per cultivated acre, without distinction of value, 
would have effects directly the reverse. Taking no more from 
the best qualities of land than from the worst, it would leave the 
differences the same as before, and consequently the same corn-rents, 
and the landlords would profit to the full extent of the rise of price. 
To put the thing in another manner ; the price must rise sufficiently 
to enable the worst land to pay the tax ; thus enabfing all lands 
which produce more than the worst to pay not only the tax, but 
also an increased rent to the landlords. These, however, are not so 
much taxes on the produce of land, as taxes on the land itself. 
Taxes on the produce, properly so called, whether fixed or ad valorem, 
do not affect rent, but fall on the consumer : profits, however, 
generally bearing either the whole or the greatest part of the portion 
which is levied on the consumption of the labouring classes. 

§ 4. The preceding is, I apprehend, a correct statement of the 
manner in which taxes on agricultural produce operate when first 
laid on. When, however, they are of old standing, their effect may 
be different, as was first pointed out, I beheve, by Mr. Senior. It is, 
as we have seen, an almost infalHble consequence of any reduction 
of profits to retard the rate of accumulation. Now the effect 
of accumulation, when attended by its usual accompaniment, an 
increase of population, is to increase the value and price of food, to 
raise rent and to lower profits : that is, to do precisely what is done 
by a tax on agricultural produce, except that this does not raise 
rent. The tax, therefore, merely anticipates the rise of price, and fall 



TAXES ON COMIVIODITIES 843 

of profits, wMch would have taken place ultimately tlirougli tlie mere 
progress of accumulation ; wliile it at tlie same time prevents, or 
"at least retards, tliat progress. If tlie rate of profit was such, 
previous to the imposition of a tithe, that the effect of the tithe 
reduces it to the practical minimum, the tithe will put a stop to aU 
further accumulation, or cause it to take place out of the country ; 
and the only effect which the tithe will then have had on the consumer 
is to make him pay earher the price which he would have had to pay 
somewhat later — part of which, indeed, in the gradual progress of 
wealth and population, he would have almost immediately begun to 
pay. After a lapse of time which would have admitted of a rise of 
one- tenth through the natural progress of wealth, the consumer will 
be paying no more than he would have paid if the tithe had never 
existed ; he will have ceased to pay any portion of it, and the person 
who will really pay it is the landlord, whom it deprives of the increase 
*of rent which would by that time have accrued to him. At ever^ 
successive point in this interval of time, less of the burthen will rest 
on the consumer, and more of it on the landlord : and in the ultimate 
result the minimum of profits will be reached with a smaller capital 
and population, and a lower rental, than if the course of things had 
not been disturbed by the imposition of the tax. If, on the other 
hand, the tithe or other tax on agricultural produce does not reduce 
profits to the minimum, but to something above the minimum, 
accumulation will not be stopped, but only slackened : and if popula- 
tion also increases, the two-fold increase will continue to produce its 
effects — a rise of the price of corn, and an increase of rent. These 
consequences, however, will not take place with the same rapidity 
as if the higher rate of profit had continued. At the end of twenty 
years the country will have a smaller population and capital than, 
but for the tax, it would by that time have had ; the landlords will 
have a smaller rent ; and the price of corn, having increased less 
rapidly than it would otherwise have done, will not be so much as a 
tenth higher than what, if there had been no tax, it would by that 
time have become. A part of the tax, therefore, will already have 
ceased to fall on the consumer, and devolved upon the landlord ; 
and the proportion will become greater and greater by lapse of time. 
Mr. Senior illustrates this view of the subject by Hkening the 
effects of tithes, or other taxes on agricultural produce, to those 
of natural steriHty of soil. If the land of a country without access 
to foreign supplies were suddenly smitten with a permanent deterio- 
ration of quality, to an extent which would make a tenth more 



844 BOOK V. CHAPTER IV. § 4 

labour necessary to raise the existing produce, the price of corn 
would undoubtedly rise one-tenth. But it cannot hence be inferred 
that if the soil of the country had from the beginning been one-tenth 
worse than it is, corn would at present have been one-tenth dearer 
than we find it. It is far more probable, that the smaller return 
to labour and capital, ever since the first settlement of the country, 
would have caused in each successive generation a less rapid increase 
than has taken place : that the country would now have contained 
less capital, and maintained a smaller population, so that, notwith- 
standing the inferiority of the soil, the price of corn would not 
have been higher, nor profits lower, than at present ; rent alone 
would certainly have been lower. "We may suppose two islands, 
which, being ahke in extent, in natural fertiUty, and industrial 
advancement, have up to a certain time been equal in population 
and capital, and have had equal rentals, and the same price of corn. 
Let us imagine a tithe imposed in one of these islands, but not in. 
the other. There will be immediately a difference in the price of 
corn, and therefore probably in profits. While profits are not 
tending downwards in either country, that is, while improvements 
in the production of necessaries fully keep pace with the increase 
of population, this difference of prices and profits between the 
islands may continue. But if, in the untithed island, capital in- 
creases, and population along with it, more than enough to counter- 
balance any improvements which take place, the price of corn will 
gradually rise, profits will fall, and rent will increase ; while in the 
tithed island capital and population will either not increase (beyond 
what is balanced by the improvements), or if they do, will increase 
in a less degree ; so that rent and the price of corn will either not 
rise at all, or rise more slowly. Rent, therefore, will soon be higher 
in the untithed than in the tithed island, and profits not so much 
higher, nor corn so much cheaper, as they were on the first imposi- 
tion of the tithe. These effects will be progressive. At the end 
of every ten years there will be a greater difference between the 
rentals and between the aggregate wealth and population of the two 
islands, and a less difference in profits and in the price of corn. 

At what point will these last differences entirely cease, and the 
temporary effect of taxes on agricultural produce, in raising the 
price, have entirely given place to the ultimate effect, that of 
limiting the total produce of the country ? Though the untithed 
island is always verging towards the poitit at which the price of 
food would overtake that in the tithed island, its progress towards 



TAXES ON COMMODITIES 845 

that point naturally slackens as it draws nearer to attaining it ; 
since — the difference between the two islands in the rapidity of 
accumulation depending upon the difference in the rates of profit 
— in proportion as these approximate, the movement which draws 
them closer together abates of its force. The one may not actually 
overtake the other, until both islands reach the minimum of profits : 
up to that point, the tithed island may continue more or less ahead 
of the un tithed island in the price of corn : considerably ahead if 
it is far from the minimum, and is therefore accumulating rapidly ; 
very little ahead if it is near the minimum, and accumulating 
slowly. 

But whatever is true of the tithed and untithed islands in our 
hypothetical case, is true of any country having a tithe, compared 
with the same country if it had never had a tithe. 

In England the great emigration of capital, and the almost 
periodical occurrence of commercial crises through the speculations 
occasioned by the habitually low rate of profit, are indications that 
profit has attained the practical, though not the ultimate minimum, 
and that all the savings which take place (beyond what improve- 
ments, tending to the cheapening of necessaries, make room for) 
are either sent abroad for investment, or periodically swept away. 
There can therefore, I think, be little doubt that if England had 
never had a tithe, or any tax on agricultural produce, the price of 
com would have been by this time as high, and the rate of profits 
as low, as at present. Independently of the more rapid accumula- 
tion which would have taken place if profits had not been prematurely 
lowered by these imposts ; the mere saving of a part of the capital 
which has been wasted in unsuccessful speculations; and the keeping 
at home a part of that which has been sent abroad, would have 
been quite sufficient to produce the effect. I think, therefore, 
with Mr. Senior, that the tithe, even before its commutation, had 
ceased to be a cause of high prices or low profits, and had become a 
mere deduction from rent ; its other effects being, that it caused 
the country to have no greater capital, no larger production, and 
no more numerous population than if it had been one-tenth less 
fertile than it is ; or let us rather say one-twentieth (considering 
how great a portion of the land of Great Britain was tithe-free). 

But though tithes and other taxes on agricultural produce, 
when of long standing, either do not raise the price of food and 
lower profits at all, or, if at all, not in proportion to the tax ; yet 
the abrogation of such taxes, when they exist, does not the less 



846 BOOK V. CHAPTER IV. § 4 

diminisli price, and, in general, raise tlie rate of profit. The 
abolition of a tithe takes one-tenth from the cost of production, 
and consequently from the price, of all agricultural produce ; and 
unless it permanently raises the labourers' requirements, it lowers 
the cost of labour, and raises profits. Rent, estimated in money 
or in commodities, generally remains as before ; estimated in 
agricultural produce, it is raised. The country adds as much by 
the repeal of a tithe to the margin which intervenes between it 
and the stationary state, as is cut off from that margin by a tithe 
when first imposed. Accumulation is greatly accelerated ; and if 
population also increases, the price of corn immediately begins to 
recover itself, and rent to rise ; thus gradually transferring the 
benefit of the remission from the consumer to the landlord. 

The effects which thus result from abolishing tithe, result equally 
from what has been done by the arrangements under the Commuta- 
tion Act for converting it into a rent-charge. When the tax, instead 
of being levied on the whole produce of the soil, is levied only from 
the portions which pay rent, and does not touch any fresh extension 
of cultivation, the tax no longer forms any part of the cost of pro- 
duction of the portion of the produce which regulates the price of 
all the rest. The land or capital which pays no rent can now send 
its produce to market one-tenth cheaper. The commutation of 
tithe ought therefore to have produced a considerable fall in the 
average price of corn. If it had not come so gradually into operation, 
and if the price of corn had not during the same period been under 
the influence of several other causes of change, the effect would 
probably have been markedly conspicuous. As it is, there can 
be no doubt that this circumstance has had its share in the fall 
which has taken place in the cost of production and in the price of 
home-grown produce ; though the effects of the great agricultural 
improvements which have been simultaneously advancing, and of 
the free admission of agricultural produce from foreign countries.^ 
have masked those of the other cause. This fall of price would 
not in itself have any tendency injurious to the landlord, since 
corn-rents are increased in the same ratio in which the price of corn 
is diminished. But neither does it in any way tend to increase 
his income. The rent-charge, therefore, which is substituted for 
tithe, is a dead loss to him at the expiration of existing leases : and 
the commutation of tithe was not a mere alteration in the mode 

' [The reference to " free admission,'* &c., inserted in 4th ed. (1857).] 



TAXES ON COMMODITIES U1 

in wKicli tlie landlord bore an existing burthen, but the imposition 
of a new one ; relief being afforded to the consumer at the expense 
of the landlord, who, however, begins immediately to receive 
progressive indemnification at the consumer's expense, by the 
impulse given to accumulation and population. 

§ 5. We have hitherto inquired into the effects of taxes on 
commodities, on the assumption that they are levied impartially 
on every mode in which the commodity can be produced or brought 
to market. Another class of considerations is opened, if we suppose 
that this impartiality is not maintained, and that the tax is 
imposed, not on the commodity, but on some particular mode of 
obtaining it. 

Suppose that a commodity is capable of being made by two 
different processes ; as a manufactured commodity may be produced 
either by hand or by steam-power ; sugar may be made either from 
the sugar-cane or from beet-root, cattle fattened either on hay and 
green crops, or on oil-cake and the refuse of breweries. It is the 
interest of the community that, of the two methods, producers 
should adopt that which produces the best article at the lowest 
price. This being also the interest of the producers, unless pro- 
tected against competition, and shielded from the penalties of 
indolence ; the process most advantageous to the community is 
that which, if not interfered with by government, they ultimately 
find it to their advantage to adopt. Suppose, however, that a tax 
is laid on one of the processes, and no tax at all, or one of smaller 
amount, on the other. If the taxed process is the one which the 
producers would not have adopted, the measure is simply nugatory. 
But if the tax falls, as it is of course intended to do, upon the one 
which they would have adopted, it creates an artificial motive for 
preferring the untaxed process, though the inferior of the two. If, 
therefore, it has any effect at all, it causes the commodity to be 
produced of worse quality, or at a greater expense of labour ; it 
causes so much of the labour of the community to be wasted, and 
the capital employed in supporting and remunerating the labour 
to be expended as uselessly as if it were spent in hiring men to dig 
holes and fill them up again. This waste of labour and capital 
constitutes an addition to the cost of production of the commodity, 
which raises its value and price in a corresponding ratio, and thus 
the owners of the capital are indemnified. The loss falls on the 
consumers ; though the capital of the country is also eventually 



BOOK V. CHAPTER IV. § 6 

diminished by tlie diminution of their means of saving, and in some 
degree, of their inducements to save. 

The kind of tax, therefore, which comes under the general 
denomination of a discriminating duty, transgresses the rule that 
taxes should take as little as possible from the tax-payer beyond 
what they bring into the treasury of the state. A discriminating 
duty makes the consumer pay two distinct taxes, only one of which 
is paid to the government, and that frequently the less onerous of 
the two. If a tax were laid on sugar produced from the cane, 
leaving the sugar from beet-root untaxed, then, in so far as cane sugar 
continued to be used, the tax on it would be paid to the treasury, 
and might be as unobjectionable as most other taxes ; but if cane 
sugar, having previously been cheaper than beet-root sugar, was 
now dearer, and beet-root sugar was to any considerable amount 
substituted for it, and fields laid out and manufactories established 
in consequence, the government would gain no revenue from the 
beet-root sugar, while the consumers of it would pay a real tax. 
They would pay for beet-root sugar more than they had previously 
paid for cane sugar, and the difference would go to indemnify 
producers for a portion of the labour of the country actually thrown 
away, in producing by the labour of (say) three hundred men, what 
could be obtained by the other process with the labour of two 
hundred. 

One of the commonest cases of discriminating duties, is that 
of a tax on the importation of a commodity capable of being pro- 
duced at honie, unaccompanied by an equivalent tax on the home 
production.; A commodity is never permanently imported, unless 
it can be obtained from abroad at a smaller cost of labour and capital, 
on the whole, than is necessary for producing it. If, therefore, by 
a duty on the importation, it is rendered cheaper to produce the 
article than to import it, an extra quantity of labour and capital 
is expended, without any extra result. The labour is useless, and 
the capital is spent in paying people for laboriously doing nothing. 
All custom duties which operate as an encouragement to the home 
production of the ta?:ed article, are thus an eminently wasteful mode 
of raising a revenue, y 

This character b'glongs in a peculiar degree to custom duties on 
the produce of land, unless countervailed by excise duties on the 
home production. Such taxes bring less into the pubKc treasury, 
compared with what they take from the consumers, than any 
other imposts to which civilized nations are usually subject. If the 



TAXES OK COIilMODITIES g49 

wheat produced in a country is twenty millions of quarters, and 
the consumption twenty-one millions, a million being annually 
imported, and if on this million a duty is laid which raises the price 
ten shiUings per quarter, the price which is raised is not that of the 
million only, but of the whole twenty-one milhons. Taking the 
most favourable, but extremely improbable, supposition, that the 
importation is not at all checked, nor the home production enlarged, 
the state gains a revenue of only half a miUion, while the consumers 
are taxed ten milHons and a half ; the ten millions being a contri- 
bution to the home growers, who are forced by competition to 
resign it all to the landlords. The consumer thus pays to the owners 
of land an additional tax equal to twenty times that which he pays 
to the state. Let us now suppose that the tax really checks impor- 
tation. Suppose importation stopped altogether in ordinary years ; 
it being found that the milhon of quarters can be obtained, by a 
more elaborate cultivation, or by breaking up inferior land, at a 
less advance than ten shiUings upon the previous price — say, for 
instance, five shillings a quarter. The revenue now obtains nothing, 
except from the extraordinary imports which may happen to take 
place in a season of scarcity. But the consumers pay every year 
a tax of five shilHngs on the whole twenty-one milhons of quarters, 
amounting to 5J milhons sterling. Of this the odd 250,000Z. goes 
to compensate the growers of the last million of quarters for the 
labour and capital wasted under the compulsion of the law. The 
remaining five milhons go to enrich the landlords as before. 

Such is the operation of what are technically termed Corn Laws, 
when first laid on ; and such continues to be their operation, so 
long as they have any efiect at all in raising the price of corn. But 
I am by no means of opinion that in the long run they keep up either 
prices or rents in the degree which these considerations might lead 
us to suppose. "What we have said respecting the effect of tithes 
and other taxes on agricultural produce, apphes in a great degree 
to corn laws : they anticipate artificially a rise of price and of rent, 
which would at all events have taken place through the increase of 
population and of production. The difference between a country 
without corn laws, and a country which has long had corn laws, is 
not so much that the last has a higher price or a larger rental, but 
that it has the same price and the same rental with a smaller aggregate 
capital and a smaller population. The imposition of corn laws 
raises rents, but retards that progress of accumulation which would 
in no long period have raised them fully as much. The repeal of 



850 BOOK V. CHAPTER IV. § 6 

corn laws tends to lower rents, but it unchains a force which, in 
a progressive state of capital and population, restores and even 
increases the former amount. There is every reason to expect that 
under the virtually free importation of agricultural produce, at 
last extorted from the ruling powers of this country, the price of 
food, if population goes on increasing, will gradually but steadily 
rise ; though this effect may for a time be postponed by the strong 
current which in this country has set in (and the impulse is extending 
itself to other countries) towards the improvement of agricultural 
science, and its increased application to practice. 

What we have said of duties on importation generally, is equally 
applicable to discriminating duties which favour importation from 
one place or in one particular manner, in contradistinction to 
others : such as the preference given to the produce of a colony, or 
of a country with which there is a commercial treaty : or the higher 
duties formerly imposed by our navigation laws on goods imported 
in other than British shipping. Whatever else may be alleged in 
favour of such distinctions, whenever they are not nugatory, they 
are economically wasteful. They induce a resort to a more costly 
mode of obtaining a commodity, in lieu of one less costly, and thus 
cause a portion of the labour which the country employs in providing 
itself with foreign commodities, to be sacrificed without return. 

§ 6. There is one more point relating to the operation of taxes 
on commodities conveyed from one country to another, which 
requires notice : the influence which they exert on international 
exchanges. Every tax on a commodity tends to raise its price, and 
consequently to lessen the demand for it in the market in which 
it is sold. All taxes on international trade tend, therefore, to 
produce a disturbance and a readjustment of what we have termed 
the Equation of International Demand. This consideration leads 
to some rather curious consequences, which have been pointed out 
in the separate essay on International Commerce, already several 
times referred to in this treatise. 

Taxes on foreign trade are of two kinds — taxes on imports, and 
on exports. On the first aspect of the matter it would seem that 
both these taxes are paid by the consumers of the commodity ; 
that taxes on exports consequently fall entirely on foreigners, taxes 
on imports wholly on the home consumer. The true state of the 
case, however, is much more complicated. 

" By taxing exports, we may, in certain circumstances, produce 



TAXES ON COMMODITIES 851 

a division of the advantage of the trade more favourable to ourselves. 
In some cases we may draw into our coffers, at tlie expense of 
foreigners, not only tlie whole tax, but more than the tax : in other 
cases, we should gain exactly the tax ; in others, less than the tax. 
In this last case, a part of the tax is borne by ourselves : possibly the 
whole, possibly even, as we shall show, more than the whole." 

Reverting to the supposititious case employed in the Essay, of a 
trade between Germany and England in broadcloth and linen, 
" suppose that England taxes her export of cloth, the tax not being 
supposed high enough to induce Germany to produce cloth for 
herself. The price at which cloth can be sold in Germany is 
augmented by the tax. This will probably diminish the quantity 
consumed. It may diminish it so much that, even at the increased 
price, there will not be required so great a money value as before. 
Or it may not diminish it at all, or so little, that in consequence of 
the higher price, so great a money value will be purchased than 
before. In this last case, England will gain, at the expense of 
Germany, not only the whole amount of the duty, but more ; for, 
the money value of her exports to Germany being increased, while 
her imports remain the same, money will flow into England from 
Germany. The price of cloth will rise in England, and consequently 
in Germany ; but the price of linen will fall in Germany, and conse- 
quently in England. We shall export less cloth, and import more 
linen, till the equilibrium is restored. It thus appears (what is at 
first sight somewhat remarkable) that by taxing her exports, England 
would, in some conceivable circumstances, not only gain from her 
foreign customers the whole amount of the tax, but would also 
get her imports cheaper. She would get them cheaper in two 
ways ; for she would obtain them for less money, and would have 
more money to purchase them with. Germany, on the other hand, 
would suffer doubly : she would have to pay for her cloth a price 
increased not only by the duty, but by the influx of money into 
England, while the same change in the distribution of the circulating 
medium would leave her less money to purchase it with. 

" This, however, is only one of three possible cases. If, after the 
imposition of the duty, Germany requires so diminished a quantity 
of cloth, that its total value is exactly the same as before, the 
balance of trade would be undisturbed ; England will gain the 
duty. Germany will lose it, and nothing more. If, again, the 
imposition of the duty occasions such a falHng off in the demand 
that Germany requires a less pecuniary value than before, our 



862 BOOK V. CHAPTER IV. § 6 

exports will no longer pay for our imports ; money must pass from 
England into Germany ; and Germany's share of the advantage 
of the trade will be increased. By the change in the distribution 
of money, cloth will fall in England ; and therefore it will, of course, 
fall in Germany. Thus Germany will not pay the whole of the tax. 
From the same cause, linen will rise in Germany, and consequently 
in England. When this alteration of prices has so adjusted the 
demand that the cloth and the linen again pay for one another, the 
result is that Germany has paid only a part of the tax, and the 
remainder of what has been received into our treasury has come 
indirectly out of the pockets of our own consumers of Hnen, who pay 
a higher price for that imported commodity in consequence of the 
tax on our exports, while at the same time they, in consequence of 
the efflux of money and the fall of prices, have smaller money 
incomes wherewith to pay for the Hnen at that advanced price. 

" It is not an impossible supposition that by taxing our exports 
we might not only gain nothing from the foreigner, the tax being 
paid out of our own pockets, but might even compel our own people 
to pay a second tax to the foreigner. Suppose, as before, that the 
demand of Germany for cloth falls off so much on the imposition 
of the duty, that she requires a smaller money value than before, 
but that the case is so different with linen in England, that when 
the price rises the demand either does not fall off at all, or so little 
that the money value required is greater than before. The first 
effect of laying on the duty is, as before, that the cloth exported will 
no longer pay for the linen imported. Money will therefore flow 
out of England into Germany. One effect is to raise the price of 
linen in Germany, and consequently in England. But this, by the 
supposition, instead of stopping the efflux of money, only makes 
it greater, because the higher the price, the greater the money value 
of the Hnen consumed. The balance, therefore, can only be restored 
by the other effect, which is going on at the same time, namely, the 
fall of cloth in the Enghsh and consequently in the German market. 
Even when cloth has fallen so low that its price with the duty ia 
only equal to what its price without the duty was at first, it is not a 
necessary consequence that the fall will stop ; for the same amount 
of exportation as before will not now suffice to pay the increased 
money value of the imports ; and although the German consumers 
have now not only cloth at the old price, but Hkewise increased 
money incomes, it is not certain that they will be inclined to employ 
the increase of their incomes in increasing their purchases of cloth. 



TAXES ON COMMODITIES 853 

Tlie price of clotli, therefore, must perhaps fall, to restore the 
equilibrium, more than the whole amount of the duty ; Germany 
may be enabled to import cloth at a lower price when it is taxed, 
than when it was untaxed : and this gain she will acquire at the 
expense of the Enghsh consumers of linen, who, in addition, will 
be the real payers of the whole of what is received at their own 
custom-house under the name of duties on thie export of cloth." 

It is almost unnecessary to remark that cloth and linen are here 
merely representatives of exports and imports in general ; and 
that the effect which a tax on exports might have in increasing the 
cost of imports, would affect the imports from all countries, and not 
peculiarly the articles which might be imported from the particular 
country to which the taxed exports were sent. 

" Such are the extremely various effects which may result to 
ourselves and to our customers from the imposition of taxes on our 
exports ; and the determining circumstances are of a nature so 
imperfectly ascertainable, that it must be almost impossible to decide 
with any certainty, even after the tax has been imposed, whether we 
have been gainers by it or losers." In general, however, there could 
be little doubt that a country which imposed such taxes would succeed 
in making foreign countries contribute something to its revenue ; 
but unless the taxed article be one for which their demand is ex- 
tremely urgent, they will seldom pay the whole of the amount which 
the tax brings in."^ " In any case, whatever we gain is lost by some- 
body else, and there is the expense of the collection besides : if 
international morality, therefore, were rightly understood and acted 
upon, such taxes, as being contrary to the universal weal, would 
not exist." 

Thus far of duties on exports. "We now proceed to the more 
ordinary case of duties on imports. " We have had an example of a 
tax on exports, that is, on foreigners, falling in part on ourselves. We 
shall therefore not be surprised if we find a tax on imports, that is, 
on ourselves, partly falling upon foreigners. 

*' Instead of taxing the cloth which we export, suppose that 
we tax the linen which we import. The duty which we are now 
supposing must not be what is termed a protecting duty, that is, 
a duty sufficiently high to induce us to produce the article at home. 

♦ Probably the strongest known instance of a large revenue raised from 
foreigners by a tax on exports, is the opium trade with China. The high price 
of the article under the government monopoly (which is equivalent to a high 
export duty) has so little effect in discouraging its consumption, that it is said 
to have been occasionally sold in China for as much as its weight in silver. 



854 BOOK V. CHAPTER IV. § 6 

If it tad this effect, it, would destroy entirely the trade both in 
cloth and in linen, and both countries would lose the whole of the 
advantage which they previously gained by exchanging those 
commodities with one another. We suppose a duty which might 
diminish the consumption of the article, but which would not prevent 
us from continuing to import, as before, whatever linen we did 
consume. 

" The equiUbrium of trade would be disturbed if the imposition 
of the tax diminished, in the slightest degree, the quantity of linen 
consumed. For, as the tax is levied at our own custom-house, the 
German exporter only receives the same price as formerly, though 
the English consumer pays a higher one. If, therefore, there be any 
diminution of the quantity bought, although a larger sum of money 
may be actually laid out in the article, a smaller one will be due from 
England to Germany : this sum will no longer be an equivalent for 
the sum due from Germany to England for cloth, the balance 
therefore must be paid in money. Prices will fall in Germany and 
rise in England ; linen will fall in the German market ; cloth will 
rise in the English. The Germans will pay a higher price for cloth, 
and will have smaller money incomes to buy it with ; while the 
English will obtain linen cheaper, that is, its price will exceed what 
it previously was by less than the amount of the duty, while their 
means of purchasing it will be increased by the increase of their 
money incomes. 

" If the imposition of the tax does not diminish the demand, it 
will leave the trade exactly as it was before. We shall import 
as much, and export as much ; the whole of the tax will be paid out 
of our own pockets. 

" But the imposition of a tax on a commodity almost always 
diminishes the demand more or less ; and it can never, or scarcely 
ever, increase the demand. It may, therefore, be laid down as a 
principle, that a tax on imported commodities, when it really operates 
as a tax, and not as a prohibition either total or partial, almost 
always falls in part upon the foreigners who consume our goods ; 
and that this is a mode in which a nation may appropriate to itself, 
at the expense of foreigners, a larger share than would otherwise 
belong to it of the increase in the general productiveness of the labour 
and capital of the world, which results from the interchange of 
commodities among nations." 

Those are, therefore, in the right who maintain that taxes on 
imports are partly paid by foreigners ; but they are mistaken when 



TAXES ON COMMODITIES 855 

they say, that it is by the foreign producer. It is not on the person 
from whom we buy, but on all those who buy from us, that a portion 
of our custom-duties spontaneously falls. It is the foreign consumer 
of our exported commodities, who is obUged to pay a higher price for 
them because we maintain revenue duties on foreign goods. 

There are but two cases in which duties on commodities can in any 
degree, or in any manner, fall on the producer. One is, when the 
article is a strict monopoly, and at a scarcity price. The price in 
this case being only hmited by the desires of the buyer ; the sum 
obtained from the restricted supply being the utmost which the 
buyers would consent to give rather than go without it; if the 
treasury intercepts a part of this, the price cannot be further raised 
to compensate for the tax, and it must be paid from the monopoly 
profits. A tax on rare and high-priced wines will fall wholly on the 
growers, or rather, on the owners of the vineyards. The second 
case in which the producer sometimes bears a portion of the tax, is 
more important : the case of duties on the produce of land or of 
mines. These might be so high as to diminish materially the demand 
for the produce, and compel the abandonment of some of the inferior 
qualities of land or mines. Supposing this to be the effect, the 
consumers, both in the country itself and in those which dealt with 
it, would obtain the produce at smaller cost ; and a part only, 
instead of the whole, of the duty would fall on the purchaser, who 
would be indemnified chiefly at the expense of the landowners or 
mine-owners in the producing country. 

Duties on importation may, then, be divided " into two classes : 
those which have the effect of encouraging some particular branch 
of domestic industry, and those which have not. The former are 
purely mischievous, both to the country imposing them, and to 
those with whom it trades. They prevent a saving of labour and 
capital, which, if permitted to be made, would be divided in some 
proportion or other between the importing country and the countries 
which buy what that country does or might export. 

" The other class of duties are those which do not encourage one 
mode of procuring an article at the expense of another, but allow 
interchange to take place just as if the duty did not exist, and to 
produce the saving of labour which constitutes the motive to inter- 
national, as to all other commerce. Of this kind are duties on the 
importation of any commodity which could not by any possibility 
be produced at home ; and duties not sufficiently high to counter- 
balance the difference of expense between the production of the 



856 BOOE V. CHAPTER IV. § 6 

article at home and its importation. Of the money which is brought 
into the treasury of any country by taxes of this last description, a 
part only is paid by the people of that country ; the remainder by 
the foreign consumers of their goods. 

" Nevertheless, this latter kind of taxes are in principle as 
ineligible as the former, though not precisely on the same ground. 
A protecting duty can never be a cause of gain, but always and 
necessarily of loss, to the country imposing it, just so far as it is 
eflBcacious to its end. A non-protecting duty, on the contrary, 
would in most cases be a source of gain to the country imposing it, 
in so far as throwing part of the weight of its taxes upon other 
people is a gain ; but it would be a means which it could seldom 
be advisable to adopt, being so easily counteracted by a precisely 
similar proceeding on the other side. 

" If England, in the case already supposed, sought to obtain for 
herself more than her natural share of the advantage of the trade 
with Germany, by imposing a duty upon linen, Germany would 
only have to impose a duty upon cloth, sufficient to diminish the 
demand for that article about as much as the demand for linen had 
been diminished in England by the tax. Things would then be as 
before, and each country would pay its own tax. Unless, indeed, 
the sum of the two duties exceeded the' entire advantage of the 
trade ; for in that case the trade, and its advantage, would cease 
entirely. 

*' There would be no advantage, therefore, in imposing duties 
of this kind, with a view to gain by them in the manner which has 
been pointed out. But when any part of the revenue is derived 
from taxes on commodities, these may often be as little objectionable 
as the rest. It is evident, too, that considerations of reciprocity, 
which are quite unessential when the matter in debate is a protecting 
duty, are of material importance when the repeal of duties of this 
other description is discussed. A country cannot be expected to 
renounce the power of taxing foreigners, unless foreigners will in 
return practise towards itself the same forbearance. The only mode 
in which a country pan save itself from being a loser by the revenue 
duties imposed by other countries on its commodities, is to impose 
corresponding revenue duties on theirs. Only it must take care that 
those duties be not so high as to exceed all that remains of the 
advantage of the trade, and put an end to importation altogether, 
causing the article to be either produced at home, or imported from 
another and a dearer market." 



CHAPTER V 

OF SOME OTHER TAXES 

§ 1. Besides direct taxes on income, and taxes on consump- 
tion, the financial systems of most countries comprise a variety of 
miscellaneous imposts, not strictly included in either class. The 
modern European systems retain many such taxes, though in much 
less number and variety than those semi-barbarous governments 
which European influence has not yet reached. In some of these, 
scarcely any incident of life has escaped being made an excuse for 
some fiscal exaction ; hardly any act, not belonging to daily routine, 
can be performed by any one, without obtaining leave from some 
agent of government, which is only granted in consideration of a 
payment : especially when the act requires the aid or the peculiar 
guarantee of a public authority. In the present treatise we may 
confine our attention to such taxes as lately existed, or still exist, 
in countries usually classed as civilized. 

In almost all nations a considerable revenue is drawn from taxes 
on contracts. These are imposed in various forms. One expedient 
is that of taxing the legal instrument which serves as evidence of the 
contract, and which is commonly the only evidence legally admissible. 
In England, scarcely any contract is binding unless executed on 
stamped paper, which has paid a tax to government ; and until very 
lately, when the contract related to property the tax was proportion- 
ally much heavier on the smaller than on the larger transactions ; 
which is still true of some of those taxes.^ There are also stamp- 
duties on the legal instruments which are evidence of the fulfilment of 
contracts ; such as acknowledgments of receipt, and deeds of release. 
Taxes on contracts are not always levied by means of stamps. The 
duty on sales by auction, abrogated by Sir Robert Peel, was an 

V[So since the 3rd ed. (1852). The original text ran: "and when the 
contract relates to property the tax rises, though in an irregular manner, 
with the pecuniary value of the property."] 



858 BOOK V. CHAPTER V. § 1 

instance in point. The taxes on transfers of landed property, in 
France, are another : in England there are stamp-duties. In some 
countries, contracts of many kinds are not valid unless registered, 
and their registration is made an occasion for a tax. 

Of taxes on contracts, the most important are those on the 
transfer of property ; chiefly on purchases and sales. Taxes on the 
sale of consumable commodities are simply taxes on those com- 
modities. If they affect only some particular commodities, they 
raise the prices of those commodities, and are paid by the consumer. 
If the attempt were made to tax all purchases and sales, which, 
however absurd, was for centuries the law of Spain, the tax, if it 
could be enforced, would be equivalent to a tax on all commodities, 
and would not affect prices : if levied from the sellers, it would be a 
tax on profits, if from the buyers, a tax on consumption ; and 
neither class could throw the burthen upon the other. If confined 
to some one mode of sale, as for example by auction, it discourages 
recourse to that mode, and if of any material amount, prevents it 
from being adopted at all, unless in a case of emergency ; in which 
case as the seller is under a necessity to sell, but the buyer under 
no necessity to buy, the tax falls on the seller ; and this was the 
strongest of the objections to the auction duty: it almost always 
fell on a necessitous person, and in the crisis of his necessities. 

Taxes on the purchase and sale of land are, in most countries^ 
liable to the same objection. Landed property in old countries ia 
seldom parted with, except from reduced circumstances, or some 
urgent need : the seller, therefore, must take what he can get, while 
the buyer, whose object is an investment, makes his calculations on 
the interest which he can obtain for his money in other ways, and 
will not buy if he is charged with a government tax on the trans- 
action.* It has indeed been objected, that this argument would 
not apply if all modes of permanent investment, such as the purchase 
of government securities, shares in joint-stock companies, mortgages, 
and the like, were subject to the same tax. But even then, if paid by 
the buyer, it would be equivalent to a tax on interest : if sufficiently 
heavy to be of any iniportance, it would disturb the established 
relation between interest and profit ; and the disturbance would 

* [1865] The statement in the text requires modification in the case ol 
countries where the land is owned in small portions. These, being neither a 
badge of importance, nor in general an object of local attachment, are readily- 
parted with at a small advance on their original cost, with the intention of 
buying elsewhere; and the desire of acquiring land even on disadvantageous 
terms Is so great as to be little checked by even a high rate of taxation. 



MISCELLANEOUS TAXES 859 

redress its- If by a rise in tlie rate of interest, and a fall of the price of 
land and of all securities. It appears to me, therefore, that the seller 
is the person by whom such taxes^ unless under pecuhar circumstances, 
will generally be borne. 

All taxes must be condemned which throw obstacles in the way 
of the sale of land, or other instruments of production. Such sales 
tend naturally to render the property more productive. The seller, 
whether moved by necessity or choice, is probably some one who is 
either without the means, or without the capacity, to make the most 
advantageous use of the property for productive purposes ; while 
the buyer, on the other hand, is at any rate not needy, and is fre- 
quently both inchned and able to improve the property, since, as 
it is worth more to such a person than to any other, he is Hkely to 
oSer the highest price for it. All taxes, therefore, and all difficulties 
and expenses, annexed to such contracts, are decidedly detrimental ; 
especially in the case of land, the source of subsistence, and the 
original foundation of all wealth, on the improvement of which, 
therefore, so much depends. Too great facilities cannot be given to 
enable land to pass into the hands, and assume the modes of aggrega- 
tion or division, most conducive to its productiveness. If landed 
properties are too large, aUenation should be free, in order that they 
may be subdivided ; if too small, in order that they may be united. 
AU taxes on the transfer of landed property should be aboHshed ; 
but, as the landlords have no claim to be reheved from any reserva- 
tion which the state has hitherto made in its own favour from the 
amount of their rent, an annual impost equivalent to the average 
produce of these taxes should be distributed over the land generally, 
in the form of a land-tax.i 

Some of the taxes on contracts are very pernicious, imposing a 
virtual penalty upon transactions which it ought to be the policy 
of the legislator to encourage. Of this sort is the stamp-duty on 
leases, which in a country of large properties are an essential con- 
dition of good agriculture ; and the taxes on insurances, a direct 
discouragement to prudence and forethought.^ 

^ [The long footnote in the original edition illustrating the higher rate of 
stamp duties on smaller contracts, disappeared from the 3rd ed. (1852).] 

2 [At this point the following passage remained, with an unimportant 
verbal alteration, through the first six editions and disappeared in 1871 : "In 
the case of fire insurances, the tax is exactly double the amount of the premium 
of insurance on common risks ; so that the person insuring is obliged by the 
government to pay for the insurance just three times the value of the risk. If 
this tax existed in France, we sbould not see, as we do in some of her pro- 
vinces, the plate of an insurance company ouv almost every cottage or hovel. 



860 BOOK V. CHAPTER V. § 2 

§ 2. Nearly allied to the taxes on contracts are those on com- 
munication. The principal of these is the postage tax ; to which 
may be added taxes on advertisements, and on newspapers, which 
are taxes on the communication of information. 

The common mode of levying a tax on the conveyance of letters 
is by making the government the sole authorized carrier of them, 
and demanding a monopoly price. When this price is so moderate 
as it is in this country under the uniform penny postage, scarcely 
if at all exceeding what would be charged under the freest competi- 
tion by any private company, it can hardly be considered as taxa- 
tion, but rather as the profits of a business ; whatever excess there 
is above the ordinary profits of stock being a fair result of the saving 
of expense, caused by having only one establishment and one set 
of arrangements for the whole country, instead of many competing 
ones. The business, too, being one which both can and ought to 
be conducted on fixed rules, is one of the few businesses which it is 
not unsuitable to a government to conduct. The post office, there- 
fore, is at present one of the best of the sources from which this 
country derives its revenue. But a postage much exceeding what 
would be paid for the same service in a system of freedom is not a 
desirable tax. Its chief weight falls on letters of business, and 
increases the expense of mercantile relations between distant 
places. It is Hke an attempt to raise a large revenue by heavy 
tolls : it obstructs all operations by which goods are conveyed from 
place to place, and discourages the production of commodities in 
one place for consumption in another ; which is not only in itself 
one of the greatest sources of economy of labour, but is a necessary 
condition of almost all improvements in production, and one of the 
strongest stimulants to industry, and promoters of civilization. 

The tax on advertisements was not ^ free from the same objection, 
since in whatever degree advertisements are useful to business, by 
facihtating the coming together of the dealer or producer and the 
consumer, in that same degree, if the tax be high enough to be a 
serious discouragement to advertising, it prolongs the period during 
which goods remain unsold, and capital locked up in idleness.^ 

This, indeed, must be ascribed to the provident and calculating habits produced 
by the dissemination of property through the labouring class : but a tax of 
so extravagant an amount would be a heavy drag upon any habits of pro- 
vidence."] 

1 [" Is not " until the 7th ed. (1871).] 

2 I The next sentence of the original text disappeared from the 3rd ed. 
(1852) : " In this country the amount of the duty is moderate, and the abuse 



JXLJ.K3 vy I i I i I iX^.1.1 XU\J VJkJ 



A tax on newspapers is objectionable, not so mucli where it does 
fall as where it does not, that is, where it prevents newspapers from 
being used. To the generahty of those who buy them, newspapers 
are a luxury which they can as well afiord to pay for as any other 
indulgence, and which is as unexceptionable a source of revenue. 
But to that large part of the community who have been taught to 
read, but have received Uttle other intellectual education, news- 
papers are the source of nearly all the general information which 
they possess, and of nearly all their acquaintance with the ideas and 
topics current among mankind ; and an interest is more easily excited 
in newspapers, than in books or other more recondite sources of 
instruction. Newspapers contribute so little, in a direct way, to 
the origination of useful ideas, that many persons undervalue the 
importance of their office in disseminating them. They correct 
many prejudices and superstitions, and keep up a habit of dis- 
cussion, and interest in public concerns, the absence of which is a 
great cause of the stagnation of mind usually found in the lower and 
middle, if not in all, ranks of those countries where newspapers of 
an important or interesting character do not exist. There ought 
to be no taxes (as in this country there now are not) ^ which render 
this great diffuser of information, of mental excitement, and mental 
exercise, less accessible to that portion of the pubUc which most 
aeeds to be carried into a region of ideas and interest beyond its own 
limited horizon, 

§ 3. In the enumeration of bad taxes, a conspicuous place must 
* be assigned to law taxes ; which extract a revenue for the state from 
the various operations involved in an application to the tribunals. 
Like all needless expenses attached to law proceedings, they are a 
tax on redress, and therefore a premium on injury. Although such 
taxes have been abohshed in this country as a general source of 
revenue, they still exist in the form of fees of court, for defraying the 
expense of the courts of justice ; under the idea, apparently, that 
those may fairly be required to bear the expenses of the administra- 
tion of justice who reap the benefit of it. The fallacy of this doctrine 
was powerfully exposed by Bentham. As he remarked, those who 
are under the necessity of going to law are those who benefit least, not 

of advertising, wliieh is quite as conspicuous as the use, renders the abolition 
of the tax, though right in principle, a matter of less urgency than it might 
otherwise be deemed."] 

^ [The parenthesis added in 7th ed. (1871).] 



862 BOOK V. CHAPTER V. § 4 

most, by tlie law and its administration. To them the protection 
which the law affords has not been complete, since they have been 
obHged to resort to a court of justice to .ascertain their rights, or 
maintain those rights against infringement : while the remainder 
of the public have enjoyed the immunity from injury conferred by 
the law and the tribunals, without the inconvenience of an appeal 
to them. 

§ 4. Besides the general taxes of the State, there are in all or 
most countries local taxes, to defray any expenses of a pubUc nature 
which it is thought best to place under the control or management 
of a local authority. Some of these expenses are incurred for pur- 
poses in which the particular locality is solely or chiefly interested ; 
as the pa\dng, cleansing, and lighting of the streets ; or the making 
and repairing of roads and bridges, which may be important to 
people from any part of the country, but only in so far as they, or 
goods in which they have an interest, pass along the roads or over 
the bridges. In other cases again, the expenses are of a kind as 
nationally important as any others, but are defrayed locally, because 
supposed more likely to be well administered by local bodies ; as, 
in England, the reUef of the poor, and the support of gaols, and in 
some other countries, of schools. To decide for what public objects 
local superintendence is best suited, and what are those which should 
be kept immediately under the central government, or under a 
mixed system of local management and central superintendence, is 
a question not of political economy, but of administration. It is 
an important principle, however, that taxes imposed by a local 
authority, being less amenable to publicity and discussion than the 
acts of the government, should always be special — laid on for some 
definite service, and not exceeding the expense actually incurred in 
rendering the service. Thus limited, it is desirable, whenever 
practicable, that the burthen should fall on those to whom the 
service is rendered ; that the expense, for instance, of roads and 
bridges, should be defrayed by a toll on passengers and goods con- 
veyed by them, thus dividing the cost between those who use them 
for pleasure or convenience, and the consumers of the goods which 
they enable to be brought to and from the market at a diminished 
expense. When, however, the tolls have repaid with interest the 
whole of the expenditure, the road or bridge should be thrown open 
free of toll, that it may be used also by those to whom, unless 
open gratuitously, it would be valueless ; provision being made for 



MISCELLANEOUS TAXE^^^^ * ""^" m 

repairs either from tlie funds of the state, or by a rate levied on the 
localities which reap the principal benefit. 

In England, almost all local taxes are direct, (the coal duty of 

the City of London, and a few similar imposts, being the chief 

exceptions,) though the greatest part of the taxation for general 

purposes is indirect. On the contrary, in France, Austria, and other 

countries where direct taxation is much more largely employed by 

the state, the local expenses of towns are principally defrayed by 

taxes levied on commodities when entering them. These indirect 

taxes are much more objectionable in towns than on the frontier, 

because the things which the country supplies to the towns are 

chiefly the necessaries of life and the materials of manufacture^ 

while, of what a country imports from foreign countries, the greater 

part usually [1848] consists of luxuries. An octroi cannot produce 

a large revenue, without pressing severely upon the labouring classes 

of the towns ; unless their wages rise proportionally, in which case 

the tax falls in a great measure on the consumers of town produce, 

whether residing in town or country, since capital will not remain 

in the towns if its profits fall below their ordinary proportion as 

compared with the rural districts.^ 

* [See Appendix GG. The Incidence of Taxation.} 



CHAPTER VI 

COMPARISON BETWEEN DIRECT AND INDIRECT TAXATION 

§ 1. Are direct or indirect taxes the most eligible ? This 
question, at all times interesting, has of late excited a considerable 
amount of discussion. In England there is a popular feeling, of old 
standing, in favour of indirect, or it should rather be said in opposi- 
tion to direct, taxation. The feeling is not grounded on the merits 
of the case, and is of a puerile kind. An EngHshman dislikes, not 
BO much the payment, as the act of paying. He dislikes seeing the 
face of the tax-collector, and being subjected to his peremptory 
demand. Perhaps, too, the money which he is required to pay 
directly out of his pocket is the only taxation which he is quite sure 
that he pays at all. That a tax of one shiUing per pound on tea, 
or of two shilHngs per bottle on wine, raises the price of each pound 
of tea and bottle of wine which he consumes, by that and more than 
that amount, cannot indeed be denied ; it is the fact, and is intended 
to be so, and he himself, at times, is perfectly aware of it ; but it 
makes hardly any impression on his practical feelings and associations, 
serving to illustrate the distinction between what is merely known 
to be true and what is felt to be so. The unpopularity of direct 
taxation, contrasted with the easy manner in which the public 
consent to let themselves be fleeced in the prices of commodities, 
has generated in many friends of improvement a directly opposite 
mode of thinking to the foregoing. They contend that the very 
reason which makes direct taxation disagreeable, makes it preferable. 
Under it, every one knows how much he really pays ; and if he votes 
for a war, or any other expensive national luxury, he does so with 
his eyes open to what it costs him. If all taxes were direct, taxation 
would be much more perceived than at present ; and there would 
be a security which now there is not, for economy in the public 
expenditure. 

Although this argument is not without force, its weight is hkely 



DIRECT AND INDIRECT TAXES COMPARED 86-!) 

to be constantly diminisliing. The real incidence of indirect taxa- 
tion is every day more generally understood and more famiKarly 
recognised : and whatever else may be said of the changes which 
are taking place in the tendencies of the human mind, it can scarcely, 
I think, be denied, that things are more and more estimated accord- 
ing to their calculated value, and less according to their non-essential 
accompaniments. The mere distinction between paying money 
directly to the tax-collector, and contributing the same sum through 
the intervention of the tea-dealer or the wine-merchant, no longer 
makes the whole difference between disHke or opposition and 
passive acquiescence. But further, while any such infirmity of 
the popular mind subsists, the argument grounded on it tells partly 
on the other side of the question. If our present revenue of about 
seventy [1862] milHons were all raised by direct taxes, an extreme 
dissatisfaction would certainly arise at having to pay so much ; 
but while men's minds are so Httle guided by reason, as such a change 
of feeling from so irrelevant a cause would imply, so great an aversion 
to taxation might not be an unquahfied good. Of the seventy milUons 
in question, nearly thirty are pledged, under the most binding 
obhgations, to those whose property has been borrowed and spent 
by the state : and while this debt remains unredeemed, a greatly 
increased impatience of taxation would involve no Httle danger of a 
breach of faith, similar to that which, in the defaulting states of 
America, has been produced, and in some of them still continues, 
from the same cause. That part, indeed, of the pubhc expenditure 
which is devoted to the maintenance of civil and mihtary establish- 
ments (that is, all except the interest of the national debt) aSords, 
in many of its details, ample scope for retrenchment.^ But while 
much of the revenue is wasted under the mere pretence of public 
service, so much of the most important business of government is 
left undone, that whatever can be rescued from useless expenditure 
is urgently required for useful. Whether the object be education ; 
a more efficient and accessible administration of justice ; reforms 
of any kind which, hke the Slave Emancipation, require compensa- 
tion to individual interests ; or what is as important as any of these, 
the entertainment of a sufficient Staff of able and educated pubhc 

1 [So since the 3rd ed. (1852). According to the original text, the expendi- 
ture on civil and military estabUshments was " still in many cases unnecessarily 
profuse, but though many of the items will bear great reduction, others cer- 
tainly require increase," and the hope was not held out, as in the parenthesis 
also inserted further on in the paragraph in the 3rd ed., that retrenchment would 
piovide sufficient means for the new purposes.] 

2 F 



866 BOOK V. CHAPTER VI. § 1 

servants, to conduct in a better than the present awkward manner 
the business of legislation and administration ; every one of these 
things implies considerable expense, and many of them have again 
and again been prevented by the reluctance which existed to apply 
to ParUament for an increased grant of public money, though 
(besides that the existing means would probably be sufficient if 
applied to the proper purposes) the cost would be repaid, often 
a hundred-fold, in mere pecuniary advantage to the community 
generally. If so great an addition were made to the public dishke 
of taxation as might be the consequence of confining it to the 
direct form, the classes who profit by the misappKcation of public 
money might probably succeed in saving that by which they 
profit, at the expense of that which would only be useful to the 
public. 

There is, however, a frequent plea in support of indirect taxation 
which must be altogether rejected, as grounded on a fallacy. We 
are often told that taxes on commodities are less burthensome 
than other taxes, because the contributor can escape from them 
by ceasing to use the taxed commodity. He certainly can, if that 
be his object, deprive the government of the money : but he does so 
by a sacrifice of his own indulgences, which (if he chose to undergo 
It) would equally make up to him for the same amount taken from 
him by a direct taxation. Suppose a tax laid on wine, sufficient 
to add five pounds to the price of the quantity of wine which he 
consumes in a year. He has only (we are told) to diminish his 
consumption of wine by 51., and he escapes the burthen. True : but 
if the 5Z., instead of being laid on wine, had been taken from him by 
an income tax, he could, by expending 51. less in wine, equally save 
the amount of the tax, so that the difference between the two cases 
is really illusory. If the government takes from the contributor 
five pounds a year, whether in one way or another, exactly that 
amount must be retrenched from his consumption to leave him as 
well off as .before ; and in either way the same amount of sacrifice, 
neither more nor less, is imposed on him. 

On the other hand, it is some advantage on the side of indirect 
taxes, that what they exact from the contributor is taken at a time 
and in a manner Hkely to be convenient to him. It is paid at a time 
when he has at any rate a payment to make ; it causes, therefore, 
no additional trouble, nor (unless the tax be on necessaries) any 
inconvenience but what is inseparable from the payment of the 
amount. He can also, except in the case of very perishable articles^ 



DIRECT AND INDIRECT TAXES COMPARED 867 

select liis own time for laying in a stock of the commodity, and 
consequently for payment of the tax. The producer or dealer who 
advances these taxes is, indeed, sometimes subjected to incon- 
venience ; but, in the case of imported goods, this inconvenience is 
reduced to a minimum by what is called the Warehousing System, 
under which, instead of paying the duty at the time of importation, 
he is only required to do so when he takes out the goods for con- 
sumption, which is seldom done until he has either actually found, 
or has the prospect of immediately finding, a purchaser. 

1 The strongest objection, however, to raising the whole or the 
greater part of a large revenue by direct taxes, is the impossibility 
of assessing them fairly without a conscientious co-operation on 
the part of the contributors, not to be hoped for in the present low 
state of pubhc morality. In the case of an income tax, we have 
already seen that unless it be found practicable to exempt savings 
altogether from the tax, the burthen cannot be apportioned with 
any tolerable approach to fairness upon those whose incomes are 
derived from business or professions ; and this is in fact admitted 
by most of the advocates of direct taxation, who, I am afraid, 
generally get over the difiiculty by leaving those classes untaxed, 
and confining their projected income tax to " realized property," in 
which form it certainly has the merit of being a very easy form of 
plunder. But enough has been said in condemnation of this expe- 
dient. We have seen, however, that a house tax is a form of direct 
taxation not liable to the same objections as an income tax, and 
indeed liable to as few objections of any kind as perhaps any of our 
indirect taxes. But it would be impossible to raise by a house tax 
alone the greatest part of the revenue of Great Britain, without 
producing a very objectionable overcrowding of the population, 
through the strong motive which all persons would have to avoid 
the tax by restricting their house accommodation. Besides, even 
a house tax has inequahties, and consequent injustices ; no tax is 
exempt from them, and it is neither just nor poHtic to make all the 
inequahties fall in the same places, by calhng upon one tax to defray 
the whole or the chief part of the pubUc expenditure. So much of 

^ [The present text of the first two sentences of this paragraph dates from 
the 3rd ed. (1852). The original (1848) ran : 

" The decisive objection, however, to raising the whole or the greater 
part of a large revenue by direct taxes, is the impossibility of assessing them 
fairly. In the case of an income-tax, I have pointed out that the burthen 
can never be apportioned with any tolerable approach to fairness upon those 
whose incomes are derived from a business or profession."] 



868 BOOK V. CHAPTER VI. § 2 

tlie local taxation in this country being already in the form of a 
house tax, it is probable that ten millions a year would be fully as 
much as could beneficially be levied, through this medium, for 
general purposes. 

A certain amount of revenue may, as we have seen, be obtained 
without injustice by a peculiar tax on rent. Besides the present 
land-tax, and an equivalent for the revenue now derived from stamp 
duties on the conveyance of land, some further taxation might, I 
iiave contended, at some future period be imposed, to enable the 
state to participate in the progressive increase of the incomes of 
landlords from natural causes. Legacies and inheritances, we have 
also seen, ought to be subjected to taxation sufficient to yield a 
considerable revenue. With these taxes and a house tax of suitable 
amount, we should, I think, have reached the prudent limits of direct 
taxation, save in a national emergency so urgent as to justify the 
government in disregarding the amount of inequality and unfair- 
ness which may ultimately be found inseparable from an income tax.^ 
The remainder of the revenue would have to be provided by taxes 
on consumption, and the question is, which of these are the least 
objectionable. 

§ 2. There are some forms of indirect taxation which must be 
peremptorily excluded. Taxes on commodities, for revenue pur- 
poses, must not operate as protecting duties, but must be levied 
impartially on every mode in which the articles can be obtained, 
whether produced in the country itself or imported. An exclusion 
must also be put upon aU taxes on the necessaries of Hfe, or on the 
materials or instruments employed in producing those necessaries. 
Such taxes are always Hable to encroach on what should be left un- 
taxed, the incomes barely sufficient for healthful existence ; and on 
the most favourable supposition, namely, that wages rise to com 
pensate the labourers for the tax, it operates as a peculiar tax on 
profits, which is at once unjust, and detrimental to national wealth.* 

^ [So since the 3rd ed. (1852). The original ran : " in disregarding the 
inequality and unfairness inseparable from every practicable form of income 
tax."] 

* Some argue that the materials and instruments of all production should 
be exempt from taxation ; but these, when they do not enter into the pro- 
duction of necessaries, seem as proper subjects of taxation as the finished 
article. It is chiefly with reference to foreign trade that such taxes have been 
considered injurious. Internationally speaking, they may be looked upon as 
export duties, and, unless in cases in which an export duty is advisable, they 
should be accompanied with an equivalent drawback on exportation. But 



DIRECT AND INDIRECT TAXES COMPARED 869 

What remain are taxes on luxuries. And these liave some pro- 
perties which strongly recommend them. In the first place, they 
can never, by any possibiHty, touch those whose whole income is 
expended on necessaries ; while they do reach those by whom what 
is required for necessaries is expended on indulgences. In the 
next place, they operate in some cases as an useful, and the only 
useful, kind of sumptuary law. I disclaim all asceticism, and by no 
means wish to see discouraged, either by law or opinion, any in- 
dulgence (consistent with the means and obligations of the person 
using it) which is sought from a genuine incHnation for, and enjoy- 
ment of, the thing itself ; but a great portion of the expenses of the 
higher and middle classes in most countries, and the greatest in 
this, is not incurred for the sake of the pleasure afiorded by the 
things on which the money is spent, but from regard to opinion, and 
an idea that certain expenses are expected from them as an append- 
age of station ; and I cannot but think that expenditure of this 
sort is a most desirable subject of taxation. If taxation discourages 
it, some good is done, and if not, no harm ; for in so far as taxes are 
levied on things which are desired and possessed from motives of this 
description, nobody is the worse for them. When a thing is bought 
not for its use but for its costhness, cheapness is no recommendation. 
As Sismondi remarks, the consequence of cheapening articles of 
vanity, is not that less is expended on such things, but that the 
buyers substitute for the cheapened article some other which is 
more costly, or a more elaborate quahty of the same thing ; and as 
the inferior quahty answered the purpose of vanity equally well 
when it was equally expensive, a tax on the article is really paid 
by nobody : it is a creation of pubhc revenue by which nobody loses.* 

there is no sufficient reason against taxing the materials and instruments used 
in the production of anything which is itself a fit object of taxation. 

* " Were we to suppose that diamonds could only be procured from one 
particular and distant country, and pearls from another, and were the produce 
of the mines in the former, and of the fishery in the latter, from the operation 
of natural causes, to become doubly difficult to procure, the effect would merely 
be that in time half the quantity of diamonds and pearls would be sufficient to 
mark a certain opulence and rank, that it had before been necessary to employ 
for that purpose. The same quantity of gold or some commodity reducible at 
last to labour, would be required to produce the now reduced amount, aa 
the former larger amount. Were the difficulty interposed by the regulations 

of legislators it could make no difference to the fitness of these articles 

to serve the purposes of vanity." Suppose that means were discovered whereby 
the physiological process which generates the pearl might be induced ad libitum, 
the result being that the amount of labour expended in procuring each pearl 
came to be only the five-hundredth part of what it v/as before. " The ultimate 
effect of such a change would depend on whether the fishery were free or not. 



870 BOOK V. CHAPTER VI. § 3 

§ 3. In order to reduce as much as possible the inconveniences, 
and increase the advantages, incident to taxes on commodities, the 
following are the practical rules which suggest themselves. 1st. 
To raise as large a revenue as conveniently may be from those 
classes of luxuries which have most connexion with vanity and least 
with positive enjoyment ; such as the more costly quahties of all 
kinds of personal equipment and ornament. 2ndly. Whenevei 
possible, to demand the tax, not from the producer, but directly 
from the consumer, since when levied on the producer it raises the 
price always by more, and often by much more, than the mere 
amount of the tax. Most of the minor assessed taxes in this country 
are recommended by both these considerations. But with regard 
to horses and carriages, as there are many persons to whom, from 
health or constitution, these are not so much luxuries as necessaries, 
the tax paid by those who have but one riding horse, or but one 
carriage, especially of the cheaper descriptions, should be low ; 
while taxation should rise very rapidly with the number of horses 
and carriages, and with their costhness. 3rdly. But as the only 
indirect taxes which yield a large revenue are those which fall on 
articles of universal or very general consumption, and as it is there- 
fore necessary to have some taxes on real luxuries, that is, on things 
which afford pleasure in themselves, and are valued on that account 
rather than for their cost ; these taxes should, if possible, be so 
adjusted as to fall with the same proportional weight on small, on 
moderate, and on large incomes. This is not an easy matter ; since 
the things which are the subjects of the more productive taxes are 
in proportion more largely consumed by the poorer members of the 
community than by the rich. Tea, coffee, sugar, tobacco, fer- 
mented drinks, can hardly be so taxed that the poor shall not bear 

Were it free to all, as pearls could be got simply for the labour of fishing for 
them, a string of them might be had for a few pence. The very poorest class 
of society could therefore afford to decorate their persons with them. They 
would thus soon become extremely vulgar and unfashionable, and so at last 
valueless. If however we suppose that instead of the fishery being free, the 
legislator owns and has complete command of the place, where alone pearls 
are to be procured ; as the progress of discovery advanced, he might impose a 
duty on them equal to the diminution of labour necessary to procure them. 
They would then be as much esteemed as they were before. What simple 
beauty they have would remain unchanged. The difficulty to be surmounted 
in order to obtain them would be different, but equally great, and they would 
therefore equally serve to maTrk the opulence of those who possessed them." 
The net revenue obtained by such a tax " would not cost the society anything. 
If not abused in its application, it would be a clear addition of so much to the 
resources of the community." — Rae, New Principles of Political Economy, 
pp. 369-71. [Sociological Theory of Capital, pp. 286-88.] 



DIRECT AND INDIRECT TAXES COMPARED 871 

more tlian their due share of the bnrthen. Something might be 
done by making the duty on the superior quahties, which are used 
by the richer consumers, much higher in proportion to the value 
(instead of much lower, as is almost universally the practice, under 
the present [1848] English system) ; but in some cases the difficulty 
of at all adjusting the duty to the value, so as to prevent evasion, is 
said, with what truth I know not, to be insuperable ; so that it is 
thought necessary to levy the same fixed duty on all the quahties 
ahke : a flagrant injustice to the poorer class of contributors, unless 
compensated by the existence of other taxes from which, as from 
the present income tax, they are altogether exempt. 4thly. As 
far as is consistent with the preceding rules, taxation should rather 
be concentrated on a few articles than di:ffused over many, in order 
that the expenses of collection may be smaller, and that as few 
employments as possible may be burthensomely and vexatiously 
interfered with. 5thly. Among luxuries of general consumption, 
taxation should by preference attach itself to stimulants, because 
these, though in themselves as legitimate indulgences as any 
others, are more liable than most others to be used in excess, 
so that the check to consumption, naturally arising from taxation, 
is on the whole better appHed to them than to other things. 6thly. 
As far as other considerations permit, taxation should be confined 
to imported articles, since these can be taxed with a less degree of 
vexatious interference, and with fewer incidental bad efiects, than 
when a tax is levied on the field or on the workshop. Custom-dutiea 
are, cwteris 'paribus , much less objectionable than excise : but they 
must be laid only on things which either cannot, or at least will not, 
be produced in the country itself ; or else their production there 
must be prohibited (as in England is the case with tobacco), or 
subjected to an excise duty of equivalent amount. 7thly. No tax 
ought to be kept so high as to furnish a motive to its evasion too 
strong to be coimteracted by ordinary means of prevention : and 
especially no commodity should be taxed so highly as to raise up 
a class of lawless characters, smugglers, iUicit distillers, and the 
Uke. 

Of the excise and custom duties lately existing in this country, all 
which are intrinsically unfit to form part of a good system of taxa- 
tion have, since the last reforms by Mr. Gladstone, been got rid of.i 

1 [So since the 5th ed.'(1862). The original (1848) ran: "Among tho 
excise and custom duties now existing in this country, some must, on the 
principles we have laid down, be altogether condemned."] 



872 BOOK V. CHAPTER VI. § 3 

Among these are all duties on ordinary articles of food,^ whether 
for human beings or for cattle ; those on timber, as falling on 
the materials of lodging, which is one of the necessaries of Hfe ; 
all duties on the metals, and on implements made of them ; taxes 
on soap, which is a necessary of cleanliness, and on tallow, the 
material both of that and of some other necessaries ; the tax on 
paper, an indispensable instrument of almost all business and of 
most kinds of instruction. The duties which now yield nearly the 
whole of the customs and excise revenue, those on sugar, coffee, tea, 
wine, beer, spirits, and tobacco, are in themselves, where a large 
amount of revenue is necessary, extremely proper taxes ; but at 
present grossly unjust, from the disproportionate weight with which 
they press on the poorer classes ; and some of them (those on 
spirits and tobacco) are so high as to cause a considerable ^ amount 
of smuggling. It is probable that most of these taxes might bear 
a great reduction without any material loss of revenue. In what 
manner the finer articles of manufacture, consumed by the rich, 
might most advantageously be taxed, I must leave to be decided 
by those who have the requisite practical knowledge. The difficulty 
would be to effect it without an inadmissible degree of interference 
with production. In countries which, hke the United States, import 
the principal part of the finer manufactures which they consume, 
there is little difficulty in the matter : and even where nothing is 
imported but the raw material, that may be taxed, especially the 
qualities of it which are exclusively employed for the fabrics used 
by the richer class of consumers. Thus, in England a high custom- 
duty on raw silk would be consistent with principle ; and it might 
perhaps be practicable to tax the finer qualities of cotton or linen 
yarn, whether spun in the country itself or imported. 

1 [The footnote added to the 6tli ed. (1865) wag omitted from the 7th 
(1871) : " Except the shilling per quarter duty on corn, ostensibly for 
registration, and scarcely felt as a burthen."] 

2 [So since 5th ed. (1862). In the original : " enormous."] 



CHAPTER VII 

OF A NATIONAL DEBT 

§ 1. The question must now be considered, how far it is right 
or expedient to raise money for the purposes of government, not by 
laying on taxes to the amount required, but by taking a portion of the 
capital of the country in the form of a loan, and charging the pubHc 
revenue with only the interest. Nothing needs be said about 
providing for temporary wants by taking up money ; for instance, 
by an issue of exchequer bills, destined to be paid off, at furthest in 
a year or two, from the proceeds of the existing taxes. This is a 
convenient expedient, and when the government does not possess 
a treasure or hoard, is often a necessary one, on the occurrence of 
extraordinary expenses, or of a temporary failure in the ordinary 
sources of revenue. What we have to discuss is the propriety of 
contracting a national debt of a permanent character ; defraying 
the expenses of a war, or of any season of difficulty, by loans, to be 
redeemed either very gradually and at a distant period, or not at all. 

This question has already been touched upon in the First Book.* 
We remarked, that if the capital taken in loans is abstracted from 
funds either engaged in production, or destined to be employed in it, 
their diversion from that purpose is equivalent to taking the amount 
from the wages of the labouring classes. Borrowing, in this case, is 
not a substitute for raising the supplies within the year. A govern- 
ment which borrows does actually take the amount within the year, 
and that too by a tax exclusively on the labouring classes : than 
which it could have done nothing worse, if it had supphed its wants 
by avowed taxation ; and in that case the transaction, and its evils, 
would have ended with the emergency ; while by the circuitous 
mode adopted, the value exacted from the labourers is gained, not 
by the state, but by the employers of labour, the state remaining 

* Supra, pp. 77-a 



874 BOOK V. CHAPTER VII. § 1 

charged witli the debt besides, and with its interest in perpetuity. 
The system of public loans, in such circumstances, may be pro- 
nounced the very worst which, in the present state of civilization, 
is still included in the catalogue of financial expedients. 

We however remarked that there are other circumstances in 
which loans are not chargeable with these pernicious consequences : 
namely, first, when what is borrowed is foreign capital, the over- 
flowings of the general accumulation of the world ; or, secondly, 
when it is capital which either would not have been saved at all unless 
this mode of investment had been open to it, or, after being saved, 
would have been wasted in unproductive enterprises, or sent to seek 
employment in foreign countries. When the progress of accumu- 
lation has reduced profits either to the ultimate or to the practical 
minimum, — to the rate less than which would either put a stop to 
the increase of capital, or send the whole of the new accumulations 
abroad ; government may annually intercept these new accumula- 
tions, without trenching on the employment or wages of the labouring 
classes in the country itself, or perhaps in any other country. To 
this extent, therefore, the loan system may be carried, without being 
Uable to the utter and peremptory condemnation which is due to 
it when it overpasses this limit. What is wanted is an index to 
determine whether, in any given series of years, as during the last great 
war for example [i.e. 1793-1815], the limit has been exceeded or not. 

Such an index exists, at once a certain and an obvious one. Did 
the government, by its loan operations, augment the rate of interest ? 
If it only opened a channel for capital which would not otherwise 
have been accumulated, or which, if accumulated, would not have 
been employed within the country ; this impHes that the capital, 
which the government took and expended, could not have found 
employment at the existing rate of interest. So long as the loans do 
no more than absorb this surplus, they prevent any tendency to a 
fall of the rate of interest, but they cannot occasion any rise. When 
they do raise the rate of interest, as they did in a most extraordinary 
degree during the French war, this is positive proof that the govern- 
ment is a competitor for capital with the ordinary channels of 
productive investment, and is carrying o£E, not merely funds which 
would not, but funds which would, have found productive employ- 
ment within the country. To the full extent, therefore, to which the 
loans of government, during the war, caused the rate of interest 
to exceed what it was before, and what it has been since, those loans 
are chargeable with all the evils which have been described. If it be 



A NATIONAL DEBT . 875 

objected that interest only rose because profits rose, I reply that 
tbis does not weaken, but strengthens, tbe argument. If the 
government loans produced tbe rise of profits by tbe great amount 
of capital wbicb tbey absorbed, by wbat means can tbey have bad 
this effect, unless by lowering tbe wages of labour ? It wiU perbaps 
be said, tbat wbat kept profits high during tbe war was not tbe 
drafts made on tbe national capital by tbe loans, but tbe rapid 
progress of industrial improvements. Tbis, in a great measure, 
was tbe fact ; and it no doubt alleviated tbe bardsbip to tbe labour- 
ing classes, and made tbe financial system wbicb was pursued less 
actively miscbievous, but not less contrary to principle. These 
very improvements in industry made room for a larger amount of 
capital ; and the government, by draining away a great part of the 
annual accumulations, did not indeed prevent that capital from 
existing ultimately (for it started into existence with great rapidity 
after the peace), but prevented it from existing at the time, and 
subtracted just so much, while the war lasted, from distribution 
among* productive labourers. If the government had abstained 
from taking this capital by loan, and had allowed it to reach the 
labourers, but had raised the suppUes which it required by a direct 
tax on the labouring classes, it would have produced (in every respect 
but the expense and inconvenience of collecting the tax) the very 
same economical effects which it did produce, except that we should 
not now have had the debt. The course it actually took was 
therefore worse than the very worst mode which it could possibly 
have adopted of raising the suppUes within the year ; ^ and the 
only excuse, or justification, which it admits of (so far as that excuse 
could be truly pleaded), was hard necessity ; tbe impossibibty of 
raising so enormous an annual sum by taxation, without resorting 
to taxes which from their odiousness, or from the facihty of evasion, 
it would have been found impracticable to enforce. 

When government loans are limited to the overflowings of the 
national capital, or to those accumulations which would not take 
place at all unless suffered to overflow, they are at least not Hable 
to this grave condemnation : they occasion no privation to any one 
at the time, except by the payment of the interest, and may even be 
beneficial to the labouring class during the term of their expenditure, 

^ [The concluding words of this paragraph were added in the 4th ed. (1857). 
At the same time the parenthesis " (in every respect . . . the tax) " was 
inserted above ; and the words " by the whole of that great fact " were omitted 
after " was therefore worse."] 



876 . BOOK V. CHAPTER VII. § 2 

by employing in tlie direct purchase of labour, as that of soldiers, 
sailors, &c., funds wbicb might otherwise have quitted the country 
altogether. In this case, therefore, the question really is, what it is 
commonly supposed to be in all cases, namely, a choice between a 
great sacrifice at once, and a small one indefinitely prolonged. On 
this matter it seems rational to think, that the prudence of a nation 
will dictate the same conduct as the prudence of an individual ; 
to submit to as much of the privation immediately as can easily be 
borne, and only when any further burthen would distress or cripple 
them too much to provide for the remainder by mortgaging their 
future income. It is an excellent maxim to make present resources 
suffice for present wants ; the future will have its own wants to 
provide for. On the other hand, it may reasonably be taken into 
consideration that in a country increasing in wealth, the necessary 
expenses of government do not increase in the same ratio as capital 
or population ; any burthen, therefore, is always less and less felt : 
and since those extraordinary expenses of government which are 
fit to be incurred at all are mostly beneficial beyond the existing 
generation, there is no injustice in making posterity pay a part of 
the price, if the inconvenience would be extreme of defraying the 
whole of it by the exertions and sacrifices of the generation which 
first incurred it. 

§ 2. When a country, wisely or unwisely, has burthened itself 
with a debt, is it expedient to take steps for redeeming that debt t 
In principle it is impossible not to maintain the affirmative. It is 
true that the payment of the interest, when the creditors are members 
of the same community, is no national loss, but a mere transfer. 
The transfer, however, being compulsory, is a serious evil, and the 
raising a great extra revenue by any system of taxation necessitates 
so much expense, vexation, disturbance of the channels of industry, 
and other mischiefs over and above the mere payment of the money 
wanted by the government, that to get rid of the necessity of such 
taxation is at all times worth a considerable effort. The same 
amount of sacrifice which would have been worth incurring to avoid 
contracting the debt it is worth while to incur, at any subsequent 
time, for the purpose of extinguishing it. 

Two modes have been contemplated of paying off a national debt : 
either at once by a general contribution, or gradually by a surplus 
revenue. The first would be incomparably the best, if it were 
practicable ; and it would be practicable if it could justly be done by 



A NATIONAL DEBT 877 

assessment on property alone. If property bore the wliole interest 
of the debt, property might, with great advantage to itself, pay it 
off ; since this would be merely surrendering to a creditor the 
principal sum, the whole annual proceeds of which were abeady his 
by law ; and would be equivalent to what a landowner does when 
he sells part of his estate to free the remainder from a mortgage. 
But property, it needs hardly be said, does not pay, and cannot 
justly be required to pay, the whole interest of the debt. Some 
indeed affirm that it can, on the plea that the existing generation 
is only bound to pay the debts of its predecessors from the assets it 
has received from them, and not from the produce of its own industry. 
But has no one received anything from previous generations except 
those who have succeeded to property ? Is the whole differenc* 
between the earth as it is, with its clearings and improvements, its 
roads and canals, its towns and manufactories, and the earth as it ' 
was when the first human being set foot on it, of no benefit to any 
but those who are called the owners of the soil ? Is the capital 
accumulated by the labour and abstinence of all former generations 
of no advantage to any but those who have succeeded to the legal 
ownership of part of it ? And have we not inherited a mass of 
acquired knowledge, both scientific and empirical, due to the 
sagacity and industry of those who preceded us, the benefits of which 
are the common wealth of all ? Those who are born to the owner- 
ship of property have, in addition to these common benefits, a 
separate inheritance, and to this differences it is right that advertence 
should be had in regulating taxation. It belongs to the general 
financial system of the country to take due account of this principle, 
and I have indicated, as in my opinion a proper mode of taking 
account of it, a considerable tax on legacies and inheritances. Let 
it be determined directly and openly what is due from property to 
the state, and from the state to property, and let the institutions 
of the state be regulated accordingly. Whatever is the fitting con- 
tribution from property to the general expenses of the state, in the 
same and in no greater proportion should it contribute towards 
either the interest or the repayment of the national debt. 

This, however, if admitted, is fatal to any scheme for the extinc- 
tion of the debt by a general assessment on the community. Persons 
of property could pay their share of the amount by a sacrifice of 
property, and have the same net income as before ; but if those who 
have no accumulations, but only incomes, were required to make 
up by a single payment the equivalent of the annual charge laid on 



878 BOOK V. CHAPTER VII. § 3 

them by tlie taxes maintained to pay tlie interest of tlie debt, they 
could only do so by incurring a private debt equal to their share of 
the public debt ; while from the insufficiency, in most cases, of the 
security which they could give, the interest would amount to a 
much larger annual sum than their share of that now paid by the 
state. Besides, a collective debt defrayed by taxes has, over the 
same debt parcelled out among individuals, the immense advantage, 
that it is virtually a mutual insurance among the contributors. 
If the fortune of a contributor diminishes, his taxes diminish ; if he 
is ruined, they cease altogether, and his portion of the debt is wholly 
transferred to the solvent members of the community. If it were 
laid on him as a private obHgation, he would still be liable to it even 
when penniless. 

When the state possesses property, in land or otherwise, which 
there are not strong reasons of pubUc utility for its retaining at its 
disposal, this should be employed, as far as it will go, in extinguishing 
debt. Any casual gain, or godsend, is naturally devoted to the same 
purpose. Beyond this, the only mode which is both just and 
feasible, of extinguishing or reducing a national debt, is by means of 
a surplus revenue. 

§ 3. The desirableness, per se, of maintaining a surplus for this 
purpose, does not, I think, admit of a doubt. We sometimes, 
indeed, hear it said that the amount should rather be left to " fructify 
in the pockets of the people." This is a good argument, as far as it 
goes, against levying taxes unnecessarily for purposes of unproductive 
expenditure, but not against paying off a national debt. For, what 
is meant by the word fructify ? If it means anything, it means 
productive employment ; and as an argument against taxation, we 
must understand it to assert, that if the amount were left with the 
people they would save it, and convert it into capital. It is probable, 
indeed, that they would save a part, but extremely improbable that 
they would save the whole : while if taken by taxation, and em- 
ployed in paying off debt, the whole is saved, and made productive. 
To the fundholder who receives the payment it is already capital, 
not revenue, and he will make it " fructify," that it may continue 
to afford him an income. The objection, therefore, is not only 
groundless, but the real argument is on the other side : the amount 
is much more certain of fructifjdng if it is not " left in the pockets of 
the people." 

It is not, however, advisable in all cases to maintain a surplus 



A NATIONAL DEBT 879 

revenue for the extinction of debt. The advantage of paying oS 
the national debt of Great Britain, for instance, is that it would enable 
us to get rid of the worse half of our taxation. But of this worse 
half some portions must be worse than others, and to get rid of those 
would be a greater benefit proportionally than to get rid of the rest. 
If renouncing a surplus revenue would enable us to dispense with a 
tax, we ought to consider the very worst of all our taxes as precisely 
the one which we are keeping up for the sake of ultimately aboHshing 
taxes not so bad as itself. In a country advancing in wealth, 
whose increasing revenue gives it the power of ridding itself from 
time to time of the most inconvenient portions of its taxation, I 
conceive that the increase of revenue should rather be disposed of 
by taking ofi taxes, than by Hquidating debt, as long as any very ob- 
jectionable imposts remain. In the present state of England [1848], 
therefore, I hold it to be good poKcy in the government, when it has 
a surplus of an apparently permanent character, to take ofi taxes, 
provided these are rightly selected. Even when no taxes remain 
but such as are not unfit to form part of a permanent system, it is 
wise to continue the same policy by experimental reductions of 
those taxes, until the point is discovered at which a given amount 
of revenue can be raised with the smallest pressure on the con- 
tributors. After this, such surplus revenue as might arise from any 
further increase of the produce of the taxes should not, I conceive, 
be remitted, but appHed to the redemption of debt. Eventually, 
it might be expedient to appropriate the entire produce of particular 
taxes to this purpose ; since there would be more assurance that the 
Hquidation would be persisted in, if the fund destined to it were 
kept apart, and not blended with the general revenues of the state. 
The succession duties would be pecuharly suited to such a purpose, 
since taxes paid, as they are, out of capital would be better employed 
in reimbursing capital than in defraying current expenditure. If 
this separate appropriation were made, any. surplus afterwards 
arising from the increasing produce of the other taxes, and from 
the saving of interest on the successive portions of debt paid offj 
might form a ground for a remission of taxation. 

It has been contended that some amount of national debt is 
desirable, and almost indispensable, as an investment for the savings 
of the poorer or more inexperienced part of the community. Its 
convenience in that respect is undeniable ; but (besides that the 
progress of industry is gradually aSording other modes of investment 
almost as safe and untroublesome, such as the shares or obhgations 



880 BOOK V. CHAPTER VII. § 3 

of great public companies) tlie only real superiority of an investment 
in the funds consists in the national guarantee, and this could be 
afforded by other means than that of a pubHc debt involving 
compulsory taxation. One mode which would answer the purpose 
would be a national bank of deposit and discount, with ramifications 
throughout the country ; which might receive any money confided 
to it, and either fund it at a fixed rate of interest, or allow interest 
on a floating balance, like the joint stock banks ; the interest given 
being of course lower than the rate at which individuals can borrow, 
in proportion to the greater security of a government investment ; 
and the expenses of the estabhshment being defrayed by the differ- 
ence between the interest which the bank would pay, and that 
which it would obtain, by lending its deposits on mercantile, landed, 
or other security. There are no insuperable objections in principle, 
nor, I should think, in practice, to an institution of this sort, as a 
means of supplying the same convenient mode of investment now 
afforded by the public funds. It would constitute the state a great 
insurance company, to insure that part of the community who live 
on the interest of their property, against the risk of losing it by the 
bankruptcy of those to whom they might otherwise be under the 
necessity of confiding it. 



/ 



CHAPTER VIII 

OF THE ORDINARY FUNCTIONS OF GOVERNMENT, CONSIDERED AS TO 
THEIR ECONOMICAL EFFECTS 

§ 1. Before we discuss the line of demarcation between the 
things with which the government should, and those with which they 
should not, directly interfere, it is necessary to consider the econo- 
mical effects, whether of a bad or of a good complexion, arising from 
the manner in which they acquit themselves of the duties which 
devolve on them in all societies, and which no one denies to be 
incumbent on them. 

The first of these is the protection of person and property. There 
is no need to expatiate on the inffuence exercised over the economical 
interests of society by the degree of completeness with which this 
duty of government is performed. Insecurity of person and pro- 
perty is as much as to say uncertainty of the connexion between all 
human exertion or sacrifice and the attainment of the ends for the 
sake of which they are undergone. It means, uncertainty whether 
they who sow shall reap, whether they who produce shall consume, 
and they who spare to-day shall enjoy to-morrow. It means, not 
only that labour and frugahty are not the road to acquisition, but 
that violence is. When person and property are to a certain degree 
insecure, all the possessions of the weak are at the mercy of the 
strong. No one can keep what he has produced, unless he is more 
capable of defending it than others who give no part of their time 
and exertions to useful industry are of taking it from him. The 
productive classes, therefore, when the insecurity surpasses a certain 
point, being unequal to their own protection against the predatory 
population, are obhged to place themselves individually in a state 
of dependence on some member of the predatory class, that it 
may be his interest to shield them from all depredation except 
his own. In this manner, in the Middle Ages, allodial property 
generally became feudal, and numbers of the poorer freemen 



882 BOOK V. CHAPTER VIII. § 1 

voluntarily made themselves and their posterity serfs of some 
miUtary lord. 

Nevertheless, in attaching to this great requisite, security of 
person and property, the importance which is justly due to it, 
we must not forget that even for economical purposes there are other 
things quite as indispensable, the presence of which will often make 
up for a very considerable degree of imperfection in the protective 
arrangements of government. As was observed in a previous 
chapter,* the free cities of Italy, Flanders, and the Hanseatic league, 
were habitually in a state of such internal turbulence, varied by 
such destructive external wars, that person and property enjoyed 
very imperfect protection ; yet during several centuries they in- 
creased rapidly in wealth and prosperity, brought many of the 
industrial arts to a high degree of advancement, carried on distant 
and dangerous voyages of exploration and commerce with extra- 
ordinary success, became an overmatch in power for the greatest 
feudal lords, and could defend themselves even against the sovereigns 
of Europe : because in the midst of turmoil and violence the citizens 
of those towns enjoyed a certain rude freedom, under conditions of 
union and co-operation, which, taken together, made them a brave, 
energetic, and high-spirited people, and fostered a great amount of 
public spirit and patriotism. The prosperity of these and other 
free states in a lawless age shows that a certain degree of insecurity, 
in some combinations of circumstances, has good as well as bad 
effects, by making energy and practical ability the conditions of 
safety. Insecurity paralyzes only when it is such in nature and in 
degree that no energy of which mankind in general are capable 
affords any tolerable means of self -protection. And this is a main 
reason why oppression by the government, whose power is generally 
irresistible by any efforts that can be made by individuals, has so 
much more baneful an effect on the springs of national prosperity, 
than almost any degree of lawlessness and turbulence under free 
institutions. Nations have acquired some wealth, and made some 
progress in improvement, in states of social union so imperfect as 
to border on anarchy : but no countries in which the people were 
exposed without limit to arbitrary exactions from the officers of 
government ever yet continued to have industry or wealth. A few 
generations of such a government never fail to extinguish both. 
Some of the fairest, and once the most prosperous, regions of the 

* Supra, p. 114. 



ORDINARY FUNCTIONS OF GOVERNMENT 883 

earth, have, under the Roman and afterwards under the Turkish 
dominion, been reduced to a desert, solely by that cause. I say 
solely, because they would have recovered with the utmost rapidity, 
as countries always do, from the devastations of war, or any other 
temporary calamities. Difficulties and hardships are often but an 
incentive to exertion : what is fatal to it, is the belief that it will not 
be suffered to produce its fruits. 

§ 2. Simple over-taxation by government, though a great evil, 
is not comparable in the economical part of its mischiefs to exactions 
much more moderate in amount, which either subject the contributor 
to the arbitrary mandate of government officers, or are so laid on as 
to place skill, industry, and frugality at a disadvantage. The burthen 
of taxation in our own country is very great, yet as every one knows 
its limit, and is seldom made to pay more than he expects and 
calculates on, and as the modes of taxation are not of such a kind 
as much to impair the motives to industry and economy, the sources 
of prosperity are little diminished by the pressure of taxation ; 
they may even, as some think, be increased, by the extra exertions 
made to compensate for the pressure of the taxes. But in the 
barbarous despotisms of many countries of the East, where taxation 
consists in fastening upon those who have succeeded in acquiring 
something, in order to confiscate it, unless the possessor buys its 
release by submitting to give some large sum as a compromise, we 
cannot expect to find voluntary industry, or wealth derived from any 
source but plunder. And even in comparatively civilized countries, 
bad modes of raising a revenue have had effects similar in kind, 
though in an inferior degree. French writers before the Revolution 
represented the taille as a main cause of the backward state of 
agriculture, and of the wretched condition of the rural population ; 
not from its amount, but because, being proportioned to the visible 
capital of the cultivator, it gave him a motive for appearing poor, 
which sufficed to turn the scale in favour of indolence. The arbitrary 
powers also of fiscal officers, of intendants and suhdelegues, were 
more destructive of prosperity than a far larger amount of exactions, 
because they destroyed security : there was a marked superiority in 
the condition of the pays d''etats, which, were exempt from this 
scourge. The universal venahty ascribed [1848] to Russian function- 
aries must be an immense drag on the capabihties of economical 
improvement possessed so abundantly by the Russian empire ; 
since the emoluments of pubHc officers must depend on the success 



884 BOOK V. CHAPTER VIII. § 3 

with which they can multiply vexations, for the purpose of being 
bought ofi by bribes. 

Yet mere excess of taxation, even when not aggravated by 
uncertainty, is, independently of its injustice, a serious economical 
evil. It may be carried so far as to discourage industry by 
insufficiency of reward. Very long before it reaches this point it 
prevents or greatly checks accumulation, or causes the capital 
accumulated to be sent for investment to foreign countries. Taxes 
which fall on profits, even though that kind of income may not pay 
more than its just share, necessarily diminish the motive to any 
saving, except for investment in foreign countries where profits 
are higher. Holland, for example, seems to have long ago reached 
the practical minimum of profits : already in the last century her 
wealthy capitalists had a great part of their fortunes invested in the 
loans and joint-stock speculations of other countries : and this low 
rate of profit is ascribed to the heavy taxation, which had been in 
some measure forced on her by the circumstances of her position and 
history. The taxes indeed, besides their great amount, were many 
of them on necessaries, a kind of tax peculiarly injurious to industry 
and accumulation. But when the aggregate amount of taxation is 
very great, it is inevitable that recourse must be had for part of it 
to taxes of an objectionable character. And any taxes on consump- 
tion, when heavy, even if not operating on profits, have something 
of the same effect, by driving persons of moderate means to live 
abroad, often taking their capital with them. Although I by no 
means join with those political economists who think no state of 
national existence desirable in which there is not a rapid increase of 
wealth, I cannot overlook the many disadvantages to an independent 
nation from being brought prematurely to a stationary state, 
while the neighbouring countries continue advancing. 

§ 3. The subject of protection to person and property, considered 
as afforded by government, ramifies widely, into a number of indirect 
channels. It embraces, for example, the whole subject of the per- 
fection or inefficiency of the means provided for the ascertainment 
of rights and the redress of injuries. Person and property cannot 
be considered secure where the administration of justice is' imperfect, 
either from defect of integrity or capacity in the tribunals, or 
because the delay, vexation, and expense accompanying their 
operation impose a heavy tax on those who appeal to them, and 
make it preferable to submit to any endurable amount of the evils 



ORDINARY FUNCTIONS OF GOVERNMENT 885 

wticli they are designed to remedy. In England there is no fault 
to be found with the administration of justice, in point of pecuniary 
integrity ; a result which the progress of social improvement may 
also be supposed to have brought about in several other nations 
of Europe. But legal and judicial imperfections of other kinds are 
abundant ; and, in England especially, are a large abatement from 
the value of the services which the government renders back to the 
people in return for our enormous taxation. In the first place, the 
incognoscibiUty (as Bentham termed it) of the law, and its extreme 
uncertainty, even to those who best know it, render a resort to the 
tribunals often necessary for obtaining justice, when, there being 
no dispute as to facts, no Htigation ought to be required. In the next 
place, the procedure of the tribunals is so replete with delay, vexation, 
and expense, that the price at which justice is at last obtained is an 
evil outweighing a very considerable amount of injustice ; and the 
wrong side, even that which the law considers such, has many 
chances of gaining its point, through the abandonment of Htigation 
by the other party for want of funds, or through a compromise in 
which a sacrifice is made of just rights to terminate the suit, or 
through some technical quirk, whereby a decision is obtained on 
some other ground than the merits. This last detestable incident 
often happens without blame to the judge, under a system of law 
of which a great part rests on no rational principles adapted to 
the present state of society, but was originally founded partly on a 
kind of whims and conceits, and partly on the principles and incidents 
of feudal tenure (which now survive only as legal fictions) ; and has 
only been very imperfectly adapted, as cases arose, to the changes 
which had taken place in society. Of all parts of the Enghsh legal 
system, the Court of Chancery, which has the best substantive law, 
has been incomparably the worst as to delay, vexation, and expense ; 
and this is the only tribunal for most of the classes of cases which are 
in their nature the most comphcated, such as cases of partnership, 
and the great range and variety of cases which come under the 
denomination of trust. iThe recent reforms in this Court have 
abated the mischief, but are still far from having removed it. 

Fortunately for the prosperity of England, the greater part of the 
mercantile law is comparatively modern, and was made by the 
tribunals by the simple process of recognising and giving force of 
law to the usages which, from motives of convenience, had grown 
up among merchants themselves : so that this part of the law, at 

^ [Added in 4th ed. (1857).] 



886 BOOK V. CHAPTER VIII. § 3 

least, was substantially made by those who were most interested 
in its goodness : while the defects of the tribunals have been the 
less practically pernicious in reference to commercial transactions, 
because the importance of credit, which depends on character, 
renders the restraints of opinion (though, as daily experience 
proves, an insufficient) yet a very powerful, protection against 
those forms of mercantile dishonesty which are generally recognised 
as such. 

The imperfections of the law, both in its substance and in its 
procedure, fall heaviest upon the interests connected with what is 
technically called real property ; in the general language of European 
jurisprudence, immoveable property. With respect to all this 
portion of the wealth of the community, the law fails egregiously 
in the protection which it undertakes to provide. It fails, first, 
by the uncertainty, and the maze of technicahties, which make it 
impossible for any one, at however great an expense, to possess a 
title to land which he can positively know to be unassailable. It 
fails, secondly, in omitting to provide due evidence of transactions, 
by a proper registration of legal documents. It fails, thirdly, by 
creating a necessity for operose and expensive instruments and 
formaHties (independently of fiscal burthens) on occasion of the 
purchase and sale, or even the lease or mortgage, of immoveable 
property. And, fourthly, it fails by the intolerable expense and 
delay of law proceedings in almost all cases in which real property 
is concerned. There is no doubt that the greatest sufferers by the 
defects of the higher courts of civil law are the landowners. Legal 
expenses, either those of actual Htigation, or of the preparation ol 
legal instruments, form, I apprehend, no inconsiderable item in 
the annual expenditure of most persons of large landed property, 
and the saleable value of their land is greatly impaired by the 
difficulty of giving to the buyer complete confidence in the title ; 
independently of the legal expenses which accompany the transfer. 
Yet the landowners, though they have been masters of the legislation 
of England, to say the least since 1688, have never made a single 
move in the direction of law reform, and have been strenuous 
opponents of some of the improvements of which they would more 
particularly reap the benefit ; especially that great one of a registra- 
tion of contracts affecting land, which when proposed by a Commis- 
sion of eminent real property lawyers, and introduced into the 
House of Commons by Lord Campbell, was so offensive to the 
general body of landlords, and was rejected by so large a majority, 



ORDINARY FUNCTIONS OF GOVERNMENT 887 

as to have long discouraged any repetition of the attempt.* This 
irrational hostility to improvement, in a case in which their own 
interest would be the most benefited by it, must be ascribed to an 
intense timidity on the subject of their titles, generated by the 
defects of the very law which they refuse to alter ; and to a conscious 
ignorance, and incapacity of judgment, on all legal subjects, which 
makes them helplessly defer to the opinion of their professional 
advisers, heedless of the fact that every imperfection of the law, 
in proportion as it is burthensome to them, brings gain to the lawyer. 

In so far as the defects of legal arrangements are a mere burthen 
on the landowner, they do not much afiect the sources of production ; 
but the uncertainty of the title under which land is held must often 
act as a great discouragement to the expenditure of capital in its 
improvement ; and the expense of making transfers operates to 
prevent land from coming into the hands of those who would use it 
to most advantage ; often amounting, in the case of small purchases, 
to more than the price of the land, and tantamount, therefore, to 
a prohibition of the purchase and sale of land in small portions, 
unless in exceptional circumstances. Such purchases, however, are 
almost everywhere extremely desirable, there being hardly any 
country in which landed property is not either too much or too httle 
subdivided, requiring either that great estates should be broken 
down, or that small ones should be bought up and consoKdated. 
To make land as easily transferable as stock would be one of 
the greatest economical improvements which could be bestowed 
on a country ; and has been shown, again and again, to have no 
insuperable difficulty attending it. 

Besides the excellences or defects that belong to the law and 
judicature of a country as a system of arrangements for attaining 
direct practical- ends, much also depends, even in an economical 
point of view, upon the moral influences of the law. Enough has 
been said in a former place f on the degree in which both the industrial 
and all other combined operations of mankind depend for efficiency 
on their being able to rely on one another for probity and fidelity to 
engagements ; from which we see how greatly even the economical 
prosperity of a country is liable to be aflected by anything in its 
institutions by which either integrity and trustworthiness, or the 
contrary quahties, are encouraged. The law everywhere ostensibly 

* [1865] Lord Westbury's recent Act is a material mitigation of this grievous 
defect in English law, and will probably lead to further improvements, 
t Supra, pp. 110-2. 



888 BOOK V. CHAPTER VIII. § 3 • 

favours at least pecuniary honesty and the faith of contracts ; but 
if it affords facilities for evading those obligations, by trick and 
chicanery, or by the unscrupulous use of riches in instituting unjust 
or resisting just litigation ; if there are ways and means by which 
persons may attain the ends of roguery, under the apparent sanction 
of the law ; to that extent the law is demoraHzing, even in regard 
to pecuniary integrity. And such cases are, unfortunately, frequent 
under the English system. If, again, the law, by a misplaced 
indulgence, protects idleness or prodigality against their natural 
consequences, or dismisses crime with inadequate penalties, the 
efEect, both on the prudential and on the social virtues, is unfavour- 
able. When the law, by its own dispensations and injunctions, 
establishes injustice between individual and individual ; as all laws 
do which recognise any form of slavery ; as the laws of all countries 
do, though not all in the same degree, in respect to the family 
relations ; and as the laws of many countries do, though in still 
more unequal degrees, as between rich and poor ; the effect on the 
moral sentiments of the people is still more disastrous. But these 
subjects introduce considerations so much larger and deeper than 
those of political economy, that I only advert to them in order not 
to pass wholly unnoticed things superior in importance to those of 
which I treat. 



CHAPTER IX 

THE SAME SUBJECT CONTINUED 

§ 1. Having spoken tlius far of tlie effects produced by the 
excellences or defects of the general system of the law, I shall now 
touch upon those resulting from the special character of particular 
parts of it. As a selection must be made, I shall confine myself 
to a few leading topics. The portions of the civil law of a country 
which are of most importance economically (next to those which 
determine the status of the labourer, as slave, serf, or free) are those 
relating to the two subjects of Inheritance and Contract. Of the 
laws relating to contract, none are more important economically 
than the laws of partnership, and those of insolvency. It happens 
that on all these three points there is just ground for condemning 
some of the provisions of the EngUsh law. 

With regard to Inheritance, I have, in an early chapter, considered 
the general principles of the subject, and suggested what appear 
to me to be, putting all prejudices apart, the best dispositions 
which the law could adopt. Freedom of bequest as the general 
rule, but limited by two things : first, that if there are descendants, 
who, being unable to provide for themselves, would become burthen- 
some to the state, the equivalent of whatever the state would accord 
to them should be reserved from the property for their benefit : and 
secondly, that no one person should be permitted to acquire, by 
inheritance, more than the amount of a moderate independence. 
In case of intestacy, the whole property to escheat to the state : 
which should be bound to make a just and reasonable provision for 
descendants, that is, such a provision as the parent or ancestor ought 
to have made, their circumstances, capacities, and mode of bringing 
up being considered. 

The laws of inheritance, however, have probably several phases 
of improvement to go through, before ideas so far removed from 
present modes of thinking will be taken into serious consideration : 



890 BOOK V. CHAPTER IX, § 1 

and as, among the recognised modes of determining the succession 
to property, some must be better and others worse, it is necessary to 
consider which of them deserves the preference. As an intermediate 
course, therefore, I would recommend the extension to all property 
of the present English law of inheritance affecting personal property 
(freedom of bequest, and in case of intestacy, equal division) : except 
that no rights should be acknowledged in collaterals, and that the 
property of those who have neither descendants nor ascendants, and 
make no will, should escheat to the state. 

The laws of existing nations deviate from these maxims in two 
opposite ways. In England, and in most of the countries where the 
influence of feudality is still felt in the laws, one of the objects aimed 
at in respect to land and other immoveable property is to keep 
it together in large masses : accordingly, in cases of intestacy,' it 
passes, generally speaking (for the local custom of a few places is 
different), exclusively to the eldest son. And though the rule of 
primogeniture is not binding on testators, who in England have 
nominally the power of bequeathing their property as they please, 
any proprietor may so exercise this power as to deprive his immediate 
successor of it, by entailing the property on one particular line of 
his descendants : which, besides preventing it from passing by 
inheritance in any other than the prescribed manner, is attended 
with the incidental consequence of precluding it from being sold ; 
since each successive possessor, having only a life interest in the 
property, cannot alienate it for a longer period than his own life. 
In some other countries, such as France, the law, on the contrary, 
compels division of inheritances ; not only, in case of intestacy, 
sharing the property, both real and personal, equally among all the 
children, or (if there are no children) among all relatives in the same 
degree of propinquity ; but also not recognising any power of 
bequest, or recognising it over only a Hmited portion of the property, 
the remainder being subjected to compulsory equal division. 

Neither of these systems, I apprehend, was introduced, or is 
perhaps maintained, in the countries where it exists, from any 
general considerations of justice, or any foresight of economical 
consequences, but chiefly from political motives ; in the one case 
to keep up large hereditary fortunes, and a landed aristocracy ; 
in the other, to break these down, and prevent their resurrection. 
The first object, as an aim of national policy, I conceive to be 
eminently undesirable : with regard to the second, I have pointed 
out what seems to me a better mode of attaininsr it. The merit, oj 



INHERIIANCE 891 

demerit, however, of either purpose, belongs to the general science 
of poHtics, not to the Hmited department of that science which is 
here treated of. Each of the two systems is a real and efficient 
instrument for the purpose intended by it ; but each, as it appears 
to me, achieves that purpose at the cost of much mischief. 

§ 2. There are two arguments of an economical character 
which are urged in favour of primogeniture. One is, the stimulus 
apphed to the industry and ambition of younger children, by leaving 
them to be the architects of their own fortunes. This argument was 
put by Dr. Johnson in a manner more forcible than complimentary 
to an hereditary aristocracy, when he said, by way of recommendation 
of primogeniture, that it " makes but one fool in a family." It is 
curious that a defender of aristocratic institutions should be the 
person to assert that to inherit such a fortune as takes away any 
necessity for exertion is generally fatal to activity and strength of 
mind : in the present state of education, however, the proposition, 
with some allowance for exaggeration, may be admitted to be true. 
But whatever force there is in the argument counts in favour of 
Hmiting the eldest, as well as all the other children, to a mere pro- 
vision, and dispensing with even the " one fool " whom Dr. Johnson 
was wiUing to tolerate. If unearned riches are so pernicious to the 
character, one does not see why, in order to withhold the poison 
from the junior members of a family, there should be no way but to 
unite all their separate potions, and administer them in the largest 
possible dose to one selected victim. It cannot be necessary to inflict 
this great evil on the eldest son for want of knowing what else to 
do with a large fortune. 

Some writers, however, look upon the efiect of primogeniture 
in stimulating industry, as depending, not so much on the poverty 
of the younger childreUj as on the contrast between that poverty 
and the riches of the elder ; thinking it indispensable to the activity 
and energy of the hive that there should be a huge drone here and 
there, to impress the working bees with a due sense of the advantages 
of honey. " Their inferiority in point of wealth," says Mr. 
M'Culloch, speaking of the younger children, " and their desire to 
■escape from this lower station, and to attain to the same level with 
their elder brothers, inspires them with an energy and vigour they 
could not otherwise feel. But the advantage of preserving large 
estates from being frittered down by a scheme of equal division, is 
not Hmited to its influence over the younger children of their owners. 



892 BOOK V. CHAPTER IX. § 2 

It raises universally the standard of competence, and gives new force 
to the springs which set industry in motion. The manner of Uving 
among the great landlords is that in which every one is ambitions 
of being able to indulge ; and their habits of expense, though some- 
times injurious to themselves, act as powerful 'incentives to the 
ingenuity and enterprise of the other classes, who never think their 
fortunes sufficiently ample, unless they will enable them to emulate the 
splendour of the richest landlords ; so that the custom of primogeni- 
ture seems to render all classes more industrious, and to augment 
at the same time, the mass of wealth and the scale of enjoyment." * 
The portion of truth, I can hardly say contained in these observa- 
tions, but recalled by them, I apprehend to be, that a state of 
complete equality of fortunes would not be favourable to active 
exertion for the increase of wealth. Speaking of the mass, it is as 
true of wealth as of most other distinctions — of talent, knowledge, 
virtue — that those who already have, or think they have, as much 
of it as their neighbours, will seldom exert themselves to acquire 
more. But it is not therefore necessary that society should provide 
a set of persons with large fortunes, to fulfil the social duty of standing 
to be looked at, with envy and admiration, by the aspiring poor. 
The fortunes which people have acquired for themselves answer the 
purpose quite as well, indeed much better ; since a person is more 
powerfully stimulated by the example of somebody who has earned 
a fortune, than by the mere sight of somebody who possesses one ; 
and the former is necessarily an example of prudence and frugality 
as well as industry, while the latter much oftener sets an example 
of profuse expense, which spreads, with pernicious effect, to the 
very class on whom the sight of riches is supposed to have so bene- 
ficial an influence, namely, those whose weakness of mind, and taste 
for ostentation, makes " the splendour of the richest landlords " 
attract them with the most potent spell. In America there are few 
or no hereditary fortunes : yet industrial energy, and the ardour of 
accumulation, are not supposed to be particularly backward in that 
part of the world. When a country has once fairly entered into the 
industrial career, which is the principal occupation of the modern^ 
as war was that of the ancient and mediaeval world, the desire of 
acquisition by industry needs no factitious stimulus : the advan- 
tages naturally inherent in riches, and the character they assume 

* Principles of Political Economy, ed. 1843, p. 264. There is much more 
to the same effect in the more recent treatise by the same author. On the 
Succession to Pro'^erty vacant by Death, 



INHERITANCE 893 

of a test by which talent and success in Hfe are habitually measured, 
are an ample security for their being pursued with sufficient intensity 
and zeal. As to the deeper consideration, that the diffusion of wealth, 
and not its concentration, is desirable, and that the more wholesome 
state of society is not that in which immense fortunes are possessed 
by a few and coveted by all, but that in which the greatest possible 
numbers possess and are contented with a moderate competency, 
which all may hope to acquire ; I refer to it in this place only to 
show how widely separated, on social questions, is the entire mode 
of thought of the defenders of primogeniture, from that which is 
partially promulgated in the present treatise. 

The other economical argument in favour of primogeniture has 
special reference to landed property. It is contended that the habit 
of dividing inheritances equally, or with an approach to equahty, 
among children,' promotes the subdivision of land into portions too 
small to admit of being cultivated in an advantageous manner. This 
argument, eternally reproduced, has again and again been refuted 
by English and Continental writers. It proceeds on a supposition 
entirely at variance with that on which all the theorems of pohtical 
economy are grounded. It assumes that mankind in general 
will habitually act in a manner opposed to their immediate and 
obvious pecuniary interest. For the division of the inheritance 
does not necessarily imply division of the land ; which may be held 
in common, as is not unfrequently the case in France and Belgium ; 
or may become the property of one of the coheirs, being charged 
with the shares of the others by way of mortgage ; or they may sell 
it outright, and divide the proceeds. When the division of the land 
would diminish its productive power, it is the direct interest of tho 
heirs to adopt some one of these arrangements. Supposing, how- 
ever, what the argument assumes, that either from legal difficulties, 
or from their own stupidity and barbarism, they would not, if left 
to themselves, obey the dictates of this obvious interest, but would 
insist upon cutting up the land bodily into equal parcels, with the 
effect of impoverishing themselves ; this would be an objection to 
a law such as exists in France, of compulsory division, but can be no 
reason why testators should be discouraged from exercising the 
right of bequest in general conformity to the rule of equahty, since 
it would always be in their power to provide that the division of the 
inheritance should take place without dividing the land itself. That 
the attempts of the advocates of primogeniture to make out a case 
by facts against the custom of equal division are equally abortive. 



894 BOOK V. CHAPTER IX. § 3 

has been shown in a former place. In all countries, or parts of 
countries, in which the division of inheritances is accompanied by 
small holdings, it is because small holdings are the general system 
of the country, even on the estates of the great proprietors. 

Unless a strong case of social utihty can be made out for primo- 
geniture, it stands sufficiently condemned by the general principles 
of justice ; being a broad distinction in the treatment of one person 
and of another, grounded solely on an accident. There is no need, 
therefore, to make out any case of economical evil against primo- 
geniture. Such a case, however, and a very strong one, may be 
made. It is a natural eSect of primogeniture to make the landlords 
a needy class. The object of the institution, or custom, is to keep 
the land together in large masses, and this it commonly accomplishes ; 
but the legal proprietor of a large domain is not necessarily the bond 
fide owner of the whole income which it yields. It is usually charged, 
in each generation, with provisions for the other children. It is 
often charged still more heavily by the imprudent expenditure of 
the proprietor. Great landowners are generally improvident in 
their expenses ; they live up to their incomes when at the highest, 
and if any change of circumstances diminishes their resources, some 
time elapses before they make up their minds to retrench. Spend- 
thrifts in other classes are ruined, and disappear from society ; but 
the spendthrift landlord usually holds fast to his land, even when 
he has become a mere receiver of its rents for the benefit of creditors. 
The same desire to keep up the " splendour " of the family, which 
gives rise to the custom of primogeniture, indisposes the owner to 
sell a part in order to set free the remainder ; their apparent are 
therefore habitually greater than their real means, and they are 
under a perpetual temptation to proportion their expenditure to 
the former rather than to the latter. From such causes as these, in 
almost all countries of great landowners, the majority of landed 
estates are deeply mortgaged ; and instead of having capital to 
spare for improvements, it requires all the increased value of land, 
caused by the rapid increase of the wealth and population of the 
country, to preserve the class from being impoverished. 

§ 3. To avert this impoverishment, recourse was had to the 
contrivance of entails, whereby the order of succession was irre- 
vocably fixed, and each holder, having only a Hfe interest, was 
unable to burthen his successor. The land thus passing, free from 
debt, into the possession of the heir, the family could not be ruined 



INHERITANCE 895 

by the improvidence of its existing representative. The economical 
evils arising from tHs disposition of property were partly of the 
same kind, partly different, but on the whole greater, than those 
arising from primogeniture alone. The possessor could not now 
ruin his successors, but he could still ruin himself : he was not at 
all more Hkely than in the former case to have the means necessary 
for improving the property : while, even if he had, he was still less 
likely to employ them for that purpose, when the benefit was to 
accrue to a person whom the entail made independent of him, while 
he had probably younger children to provide for, in whose favour he 
could not now charge the estate. While thus disabled from being 
himself an improver, neither could he sell the estate to somebody 
who would ; since entail precludes aHenation. In general he has 
even been unable to grant leases beyond the term of his own Hfe ; 
" for," says Blackstone, " if such leases had been vahd, then, 
under cover of long leases, the issue might have been virtually dis- 
inherited ; " and it has been necessary in Great Britain to relax, by 
statute, the rigour of entails, in order to allow either of long leases, 
or of the execution of improvements at the expense of the estate. 
It may be added that the heir of entail, being assured of succeeding 
to the family property, however undeserving of it, and being aware 
of this from his earUest years, has much more than the ordinary 
chances of growing up idle, dissipated, and profligate. 

In England, the power of entail is more Hmited by law than in 
Scotland and in most other countries where it exists. A landowner can 
settle his property upon any number of persons successively who 
are living at the time, and upon one unborn person, on whose attain- 
ing the age of twenty-one the entail expires, and the land becomes 
his absolute property. An estate may in this manner be transmitted 
through a son, or a son and grandson, living when the deed is 
executed, to an unborn child of that grandson. It has been main- 
tained that this power of entail is not sufficiently extensive to do 
any mischief : in truth, however, it is much larger than it seems. 
Entails very rarely expire ; the first heir of entail, when of age, 
joias with the existing possessor in resettling the estate, so as to 
prolong the entail for a further term. Large properties, therefore, 
are rarely free, for any considerable period, from the restraints of a 
strict settlement ; ^ though the mischief is in one respect mitigated, 

^ [The concluding words of this paragraph took the place in the 5th ed. 
(1862) of the following words of the original text : " and English entails are 
not, in point of fact, much less injurious tha^n those of other countries."] 



896 BOOK V. CHAPTER IX. § 4 

since in the renewal of tlie settlement for one more generation the 
estate is usually charged with a provision for younger children. 

In an economical point of view, the best system of landed pro- 
perty is that in which land is most completely an object of com- 
merce ; passing readily from hand to hand when a buyer can be 
found to whom it is worth while to offer a greater sum for the land 
than the value of the income drawn from it by its existing possessor. 
This of course is not meant of ornamental property, which is a 
source of expense, not profit ; but only of land employed for 
industrial uses, and held for the sake of the income which it affords. 
Whatever facihtates the sale of land, tends to make it a more pro- 
ductive instrument of the community at large ; whatever prevents 
or restricts its sale, subtracts from its usefulness. Now, not only 
has entail this effect, but primogeniture also. The desire to keep 
land together in large masses, from other motives than that of pro- 
moting its productiveness, often prevents changes and alienation 
which would increase its efficiency as an instrument. 

§ 4. On the other hand, a law which, Hke the French, restricts the 
power of bequest to a narrow compass, and compels the equal 
division of the whole or the greater part of the property among the 
children, seems to me, though on different grounds, also very 
seriously objectionable. The only reason for recognising in the 
children any claim at all to more than a provision, sufficient to 
launch them in fife, and enable them to find a Hvelihood, is grounded 
on the expressed or presumed wish of the parent ; whose claim to 
dispose of what is actually his own cannot be set aside by any pre- 
tensions of others to receive what is not theirs. To control the 
rightful owner's liberty of gift, by creating in the children a legal 
right superior to it, is to postpone a real claim to an imaginary one. 
To this great and paramount objection to the law, numerous secondary 
ones may be added. Desirable as it is that the parent should treat 
the children with impartiahty, and not make an eldest son or a 
favourite, impartial division is not alway synonymous with equal 
division. Some of the children may, without fault of their own, be 
less capable than others of providing for themselves : some may, 
by other means than their own exertions, be already provided for : 
and impartiahty may therefore require that the rule observed should 
not be one of equahty, but of compensation. Even when equahty 
is the object, there are sometimes better means of attaining it 
than the inflexible rules by which law must necessarily proceed. 



PARTNERSHIP 897 

If one of the coheirs, being of a quarrelsome or litigious disposition, 
stands upon his utmost rights, the law cannot make equitable adjust- 
ments ; it cannot apportion the property as seems best for the 
collective interest of all concerned ; if there are several parcels of 
land, and the heirs cannot agree about their value, the law cannot 
give a parcel to each, but every separate parcel must be either put 
up to sale or divided : if there is a residence, or a park or pleasure- 
ground, which would be destroyed, as such, by subdivision, it must 
be sold, perhaps at a great sacrifice both of money and of feeling. 
But what the law could not do, the parent could. By means of 
the Hberty of bequest, all these points might be determined according 
to reason and the general interest of the persons concerned ; and 
the spirit of the principle of equal division might be the better 
observed, because the testator was emancipated from its letter. 
Finally, it would not then be necessary, as under the compulsory 
system it is, that the law- should interfere authoritatively in the 
concerns of individuals, not only on the occurrence of a death, but 
throughout Hfe, in order to guard against the attempts of parents 
to frustrate the legal claims of their heirs, under colour of gifts and 
other aUenations inter vivos.. 

In conclusion ; aU owners of property should, I conceive, have 
power to dispose by will of every part of it, but not to determine 
the person who should succeed to it after the death of all who were 
living when the will was made. Under what restrictions it should 
be allowable to bequeath property to one person for Hfe, with 
remainder to another person already in existence, is a question 
belonging to general legislation, not to pohtical economy. Such 
settlements would be no greater hindrance to alienation than any 
case of joint ownership, since the consent of persons actually in 
existence is all that would be necessary for any new arrangement 
respecting the property. 

§ 5. From the subject of Inheritance I now pass to that of 
Contracts, and among these, to the important subject of the Laws 
of Partnership. How much of good or evil depends upon these laws, 
and how important it is that they should be the best possible, is evident 
to aU who recognise in the extension of the co-operative principle, in 
the larger sense of the term, the great economical necessity of modern 
industry. The progress of the productive arts requiring that many 
sorts of industrial occupation should be carried on by larger and 
larger capitals, the productive power of industry must suffer by 

2 a 



898 ±5UUi^ V. uiiAriJi.1^ iJ^. s o 

whatever impedes the formation of large capitals through the aggrega- 
tion of smaller ones. Capitals of the requisite magnitude belonging 
to single owners, do not, in most countries, exist in the needful 
abundance, and would be still less numerous if the laws favoured the 
diffusion instead of the concentration of property : while it is most 
undesirable that all those improved processes, and those means of 
efficiency and economy in production, which depend on the posses- 
sion of large funds, should be monopolies in the hands of a few 
rich individuals, through the difficulties experienced by persons of 
moderate or small means in associating their capital. Finally, I 
must repeat my conviction, that the industrial economy which 
divides society absolutely into two portions, the payers of wages 
and the receivers of them, the first counted by thousands and the 
last by millions, is neither fit for, nor capable of, indefinite duration : 
and the possibility of changing this system for one of combination 
without dependence, and unity of iiiterest instead of organized 
hostility, depends altogether upon the future developments of the 
Partnership principle. 

Yet there is scarcely any country whose laws do not throw great, 
and in most cases intentional, obstacles in the way of the formation 
of any numerous partnership. In England it is already a serious 
discouragement, that differences among partners are, practically 
speaking, only capable of adjudication by the Court of Chancery : 
which is often worse than placing such questions out of the pale of 
all law ; since any one of the disputant parties, who is either 
dishonest or litigious, can involve the others at his pleasure in the 
expense, trouble, and anxiety, which are the unavoidable accom- 
paniments of a Chancery suit, without their having the power of 
freeing themselves from the infliction even by breaking up the 
association.* Besides this, it required, until lately, a separate Act 

* [1852] Mr. Cecil Fane, the Commissioner of the Bankruptcy Court, in 
his evidence before the Committee on the Law of Partnership, says : " I re- 
member a short time ago reading a written statement by two eminent solicitors, 
who said that they had known many partnership accounts go into Chancery, 
but that they never knew one come out. . . . Very few of the persons who 
would be disposed to engage in partnerships of this kind " (co-operative associa- 
tions of working men) " have any idea of the truth, namely, that the decision 
of questions arising amongst partners is really impracticable. 

" Do they not know that one partner may rob the other without any possi- 
bility of his obtaining redress ? — The fact is so ; but whether they know it or 
not, I cannot undertake to say." 

This flagrant injustice is, in Mr. Fane's opinion, wholly attributable to the 
defects of the tribunal. " My opinion is, that if there is one thing more easy 
than another, it is the settlement of partnership questions, and for the simple 



PARTNERSHIP 89& 

of the legislature before any joint-stock association could legally 
constitute itself, and be empowered to act as one body. By a 
statute passed a few years ago, this necessity is done away ; but the 
statute in question is described by competent authorities as a " mass 
of confusion," of which they say that there " never was such an in- 
fliction " on persons entering into partnership.* i When a number 
of persons, whether few or many, freely desire to unite their funds 
for a common undertaking, not asking any pecuHar privilege, nor 
the power to dispossess any one of property, the law can have no 
good reason for throwing difficulties in the way of the realization 
of the project. On compliance with a few simple conditions of 
publicity, any body of persons ought to have the power of constitut- 
ing themselves into a joint-stock company, or societe en nom collectif^ 
without asking leave either of any pubHc officer or of parliament.^ 
As an association of many partners must practically be under the 
management of a few, every facility ought to be afiorded to the 
body for exercising the necessary control and check over those few, 
whether they be themselves members of the association, or merely 
its hired servants : and in this point the Enghsh system is still at a 
lamentable distance from the standard of perfection.^ 

§ 6. Whatever facilities, however, Enghsh law might give to 
associations formed on the principles of ordi.nary partnership, there 
is one sort of joint-stock association which until the year 1855 it 
absolutely disallowed, and which could only be called into existence 
by a special act either of the legislature or of the crown.^ I mean, 
associations with hmited Hability. 

Associations with limited habihty are of two kinds : in one, the 

reason, that everything which is done in a partnership is entered in the books ; 
the evidence therefore is at hand ; if therefore a rational mode of proceeding 
were once adopted, the difficulty would altogether vanish." — Minutes of Evi- 
dence annexed to the Eeport of the Select Committee on the Law of Partnership 
(1851), pp. 85-7. 

* Eeport, ut supra, p. 167. 

1 [So since the 3rd ed. (1852). In the original : " this necessity is done 
away, and the formalities which have been substituted for it are not sufficiently 
onerous to be very much of an impediment to such undertakings."] 

2 [The comment : " and this liberty, in England, they cannot now be fairly 
said not to have," (" though they have had it but for a little more than three 
years," omitted in 2nd ed. 1849 ), was dropt out of the 3rd ed.] 

^ [" Though less, I believe, owing to the defects of -the law than to those 
of the courts of judicature " ; omitted in 3rd ed.] 

^ [So since 4th ed. (1857). In the original : " which it absolutely dis- 
allows, and which can still be only '* &c. " Until lately " was inserted in the 
3rd ed. in the next paragraph,] 



900 BOOK V. UMAriJ^JK lA. ^ b 

liability of all the partners is limited, in tlie other that of some of 
them only. The first is the societe anonyme of the French law, which 
in England had until lately no other name than that of " chartered 
company : " meaning thereby a joint-stock company whose share- 
holders, by a charter from the crown or a special enactment of the 
legislature, stood exempted from any liability for the debts of the 
concern, beyond the amount of their subscriptions. The other 
species of limited partnership is that known to the French law 
under the name of commandite ; of this, which in England is still 
unrecognised and illegal, I shall speak presently. 

If a number of persons choose to associate for carrying on any 
operation of commerce or industry, agreeing among themselves 
and announcing to those with whom they deal that the members 
of the association do not undertake to be responsible beyond the 
amount of the subscribed capital ; is there any reason that the law 
should raise objections to this proceeding, and should impose on 
them the unlimited responsibility which they disclaim ? For whose 
jake ? Not for that of the partners themselves ; for it is they whom 
the limitation of responsibility benefits and protects. It must 
therefore be for the sake of third parties ; namely, those who 
may have transactions with the association, and to whom it may 
run in debt beyond what the subscribed capital suffices to pay. 
But nobody is obliged to deal with the association : still less is any 
'i>ne obliged to give it unlimited credit. The class of persons with 
tvhom such associations have dealings are in general perfectly 
capable of taking care of themselves, and there seems no reason that 
the law should be more careful of their interests than they will 
themselves be ; provided no false representation is held out, and 
they are aware from the first what they have to trust to. The law is 
warranted in requiring from all joint-stock associations with limited 
responsibility, not only that the amount of capital on which they 
profess to carry on business should either be actually paid up or 
security given for it (if, indeed, with complete publicity, such a 
requirement would be necessary), but also that such accounts should 
be kept, accessible to individuals, and if needful, published to the 
world, as shall render it possible to ascertain at any time the existing 
state of the company's afiairs, and to learn whether the capital which 
is the sole security for the engagements into which they enter, still 
subsists unimpaired : the fidelity of such accounts being guarded 
by sufficient penalties. When the law has thus afforded to in- 
dividuals all practicable means of knowing the circumstances which 



PARTNERSHIP 901 

Ought to enter into their prudential calculations in dealing with the 
company, there seems no more need for interfering with individual 
judgment in this sort of transactions, than in any other part of the 
private business of life. 

The reason usually urged for such interference is, that the 
managers of an association with Umited responsibihty, not risking 
their whole fortunes in the event of loss, while in case of gain they 
might profit largely, are not sufiiciently interested in exercising due 
circumspection, and are under the temptation of exposing the funds 
of the association to improper hazards. It is, however, well ascer- 
tained that associations with unlimited responsibility, if they have 
rich shareholders, can obtain, even when known to be reckless in 
their transactions, improper credit to an extent far exceeding what 
would be given to companies equally ill-conducted whose creditors 
had only the subscribed capital to rely on.*i To whichever side 
the balance of evil incUnes, it is a consideration of more importance 
to the shareholders themselves than to third parties ; since, with 
proper securities for publicity, the capital of an association with 
limited UabiHty could not be engaged in hazards beyond those 
ordinarily incident to the business it carries on, without the facts 
being known, and becoming the subject of comments by which the 
credit of the body would be likely to be affected in quite as great a 
degree as the circumstances would justify. If, under securities for 
publicity, it were found in practice that companies, formed on the 
principle of unHmited responsibihty, were more skilfully and more 
cautiously managed, companies with Umited liabihty would be unable 
to maintain an equal competition with them ; and would therefore 
rarely be formed, unless when such Hmitation was the only condition 
on which the necessary amount of capital could be raised : and in 
that case it would be very unreasonable to say that their formation 
ought to be prevented. 

It may further be remarked, that although, with equaUty o£' 
capital, a company of Hmited liabihty offers a somewhat less security- 
to those who deal with it, than one in which every shareholder is. 
responsible with his whole fortune, yet even the weaker of thesa 

* See the Report already referred to, pp. 145-158. 

^ [So since the 5th ed. (1862). The addition, as made in the 3rd ed. (1852)V 
began : " It has however been proved by the evidence of several experienced 
witnesses before a late committee of the House of Commons that associations"" 
&c. The original text, after " improper hazards " went on : " Admitting that 
this is one of the disadvantages of such associations, it is a consideration of 
more importance " &c.] 



902 BOOR V. CHAPTER IX. § 6 

two securities is in some respects stronger than that which an 
individual capitaHst can afford. In the case of an individual, there 
is such security as can be founded on his unHmited Hability, but not 
that derived from pubUcity of transactions, or from a known and 
large amount of paid-up capital. This topic is well treated in an 
able paper by M. CoqueHn, published in the Revue des Deux 
Mondes for July 1843.* 

" While third parties who trade with individuals," says this 
writer, " scarcely ever know, except by approximation, and even 
that most vague and uncertain, what is the amount of capital 
responsible for the performance of contracts made with them, 
those who trade with a societe anonyme can obtain full informa- 
tion if they seek it, and perform their operations with a feehng of 
confidence that cannot exist in the other case. Again, nothing is 
easier than for an individual trader to conceal the extent of his 
engagements, as no one can know it certainly but himself. Even 
his confidential clerk may be ignorant of it, as the loans he finds 
himself compelled to make may not all be of a character to require 
that they be entered in his day-book. It is a secret confined to 
himself ; one which transpires rarely, and always slowly ; one 
which is unveiled only when the catastrophe has occurred. On the 
contrary, the societe anonyme neither can nor ought to borrow, 
without the fact becoming known to all the world — directors, clerks, 
shareholders, and the pubHc. Its operations partake, in some 
respects, of the nature of those of governments. The Hght of day 
penetrates in every direction, and there can be no secrets from 
those who seek for information. Thus all is fixed, recorded, known, 
of the capital and debts in the case of the societe anonyme^ while all 
is uncertain and unknown in the case of the individual trader. 
Which of the two, we would ask the reader, presents the most 
favourable aspect, or the surest guarantee, to the view of those who 
trade with them ? 

" Again, avaihng himself of the obscurity in which his affairs 
are shrouded, and which he desires to increase, the private trader is 
enabled, so long as his business appears prosperous, to produce 
impressions in regard to his means far exceeding the reality, and 
thus to estabhsh a credit not justified by those means. When 
losses occur, and he sees himself threatened with bankruptcy, the 
world is still ignorant of his condition, and he finds himself enabled to 

* The quotation is from a translation published by Mr. H. C. Carey, in an 
American periodical, Hunfs Merchant's Magazine, for May and June 1845. 



PARTNERSHIP 903 

contract debts far beyond the possibility of payment. The fatal 
day arrives, and the creditors find a debt much greater than had 
been anticipated, while the means of payment are as much less. 
Even this is not all. The same obscurity which has served him so 
well thus far, when desiring to magnify his capital and increase his 
credit, now affords him the opportunity of placing a part of that 
capital beyond the reach of his creditors. It becomes diminished, 
if not annihilated. It hides itself, and not even legal remedies, 
nor the activity of creditors, can bring it forth from the dark corners 
in which it is placed. . . . Our readers can readily determine for 
themselves if practices of this kind are equally easy in the case of 
the societe anonywe. We do not doubt that such things are possible, 
but we think that they will agree with us that from its nature, its 
organization, and the necessary pubUcity that attends all its actions, 
the liability to such occurrences is very greatly diminished." 

The laws of most countries, England included, have erred in a 
two-fold manner with regard to joint-stock companies. While they 
have been most unreasonably jealous of allowing such associations 
to exist, especially with Hmited responsibiUty, they have generally 
neglected the enforcement of pubHcity ; the best security to the 
pubhc against any danger which might arise from this description 
of partnerships ; and a security quite as much required in the case 
of those associations of the kind in question, which, by an exception 
from their general practice, they suffered to exist. Even in the 
instance of the Bank of England, which holds a monopoly from the 
legislature, and has had partial control over a matter of so much 
public interest as the state of the circulating medium, it is only 
within these few years that any publicity has been enforced ; and 
the publicity was at first of an extremely incomplete character, 
though now, for most practical purposes, probably at length sufficient. 

§ 7. The other kind of limited partnership which demands 
our attention is that in which the managing partner or partners 
are responsible with their whole fortunes for the engagements of 
the concern, but have others associated with them who contribute 
only definite sums, and are not liable for anything beyond, though 
they participate in the profits according to any rule which may be 
agreed on. This is called partnership en commandite : and the 
partners with limited Hability (to whom, by the French law, all 
interference in the management of the concern is interdicted) are 
known by the name commanditaires. Such partnerships are not 



904 BOOK V. CHAPTER IX. § 7 

allowed by English law : ^ in all private partnerships, whoever 
shares in the profits is liable for the debts to as plenary an extent 
as the managing partner. 

For such prohibition no satisfactory defence has ever, so far as 1 
am aware, been made. Even the insufficient reason given against 
limiting the responsibility of shareholders in a joint-stock company 
does not apply here ; there being no diminution of the motives to 
circumspect management, since all who take any part in the direction 
of the concern are liable with their whole fortiines. To third parties, 
again, the security is improved by the existence of commandite ; 
3ince the amount subscribed by commanditaires is all of it available 
to creditors, the commanditaires losing their whole investment before 
any creditor can lose anything ; while, if instead of becoming 
partners to that amount, they had lent the sum at an interest equal 
to the profit they derived from it, they would have shared with the 
other creditors in the residue of the estate, diminishing fro rata the 
dividend obtained by all. While the practice of commandite thus 
conduces to the interest of creditors, it is often highly desirable for 
the contracting parties themselves. The managers are enabled 
to obtain the aid of a much greater amount of capital than they 
could borrow on their own security ; and persons are induced to aid 
useful undertakings, by embarking limited portions of capital in 
them, when they would not, and often could not prudently, have 
risked their whole fortunes on the chances of the enterprise. 

It may perhaps be thought that where due facilities are afforded 
to joint-stock companies, commandite partnerships are not required. 
But there are classes of cases to which the commandite principle 
must always be better adapted than the joint-stock principle. 
" Suppose," says M. Coquelin, " an inventor seeking for a capital 
to carry his invention into practice. To obtain the aid of capitalists, 
he must ofier them a share of the anticipated benefit ; they must 
associate themselves with him in the chances of its success. In such 
a case, which of the forms would he select ? Not a common partner- 
ship, certainly ; " for various rfeasons, and especially the extreme 
difficulty of finding a pai;tner with capital, willing to risk his whole 
fortune on the success of the invention.* " Neither would he 

1 [They nave been allowed since 1908. See Appendix HH. Company 
and Partnership Law.] 

* [1852] " There has been a great deal of commiseration professed," says 
Mr. Duncan, solicitor, " towards the poor inventor ; he has been oppressed by 
the high cost of patents ; but his chief oppression has been the partnership 
law, which prevents his getting any one to help him to develop his invention. 



PARTNERSHIP 905 

select the societe anonyme,^' or any other form of joint-stock company, 
" in which he might be superseded as manager. He would stand, 
in such an association, on no better footing than any other share- 
holder, and he might be lost in the crowd ; whereas, the association 
existing, as it were, by and for him, the management would appear 
to belong to him as a matter of right. Cases occur in which a 
merchant or a manufacturer, without being precisely an inventor, 
has undeniable claims to the management of an undertaking, from 
the possession of qualities peculiarly calculated to promote its 
success. So great, indeed," continues M. Coquelin, " is the necessity, 
in many cases, for the limited partnership, that it is difficult to 
conceive how we could dispense with or replace it : " and in reference 
to his own country he is probably in the right. 

Where there is so great a readiness as in England, on the 
part of the public, to form joint-stock associations, even without 
the encouragement of a limitation of responsibiUty ; commandite 
partnership, though its prohibition is in principle quite indefensible, 
cannot be deemed to be, in a merely economical point of view, of the 
imperative necessity which M. Coquelin ascribes to it. Yet the 
inconveniences are not small which arise indirectly from provisions 
of law by which every one who shares in the profits of a concern is 
subject to the full liabilities of an unlimited partnership. It is 
impossible to say how many or what useful modes of combination are 
rendered impracticable by such a state of the law. It is sufficient 
for its condemnation that, unless in some way relaxed, it is 
inconsistent with the payment of wages in part by a percentage on 

He is a poor man, and therefore cannot give security to a creditor ; no one 
will lend him money ; the rate of interest offered, however high it may be, is 
not an attraction. But if by the alteration of the law he could allow capitalists 
to take an interest with him and share the profits, while the risk should be 
confined to the capital they embarked, there is very little doubt at all that he 
would frequently get assistance from capitalists ; whereas at the present 
moment, with the law as it stands, he is completely destroyed, and his inven- 
tion is useless to him ; he struggles month after month ; he applies again and 
again to the capitalists without avail. I know it practically in two or three 
cases of patented inventions ; especially one where parties with capital were 
desirous of entering into an undertaking of great moment in Liverpool, but 
five or six different gentlemen were deterred from doing so, all feeling the 
strongest objection to what each one called the cursed partnership law." 
— Beport, p. 155. 

Mr. Fane says, " In the course pf my professional life, as a Commissioner 
of the Court of Bankruptcy, I have^' learned that the most unfortunate man in 
the world is an inventor. The difficulty which an inventor finds in getting 
at capital involves him in all sort^-of embarrassments, and he ultimately ia 
for the most part a ruined man, and somebody else gets possession of his 
invention."— lb. p. 82. ' '^ 



906 BOOK V. CHAPTER IX. § 7 

profits ; in other words, the association of the operatives as virtual 
partners with the capitaHst.* 

It is, above all, with reference to the improvement and elevation 
of the working classes that complete freedom in the conditions of 
partnership is indispensable. Combinations such as the associations 
of workpeople, described in a former chapter, are the most powerful 
means of effecting the social emancipation of the labourers through 
their own moral qualities. Nor is the liberty of association impor- 
tant solely for its examples of success, but fully as much so for the 
sake of attempts which would not succeed ; but by their failure 
would give instruction more impressive than can be afforded by 
anything short of actual experience. Every theory of social im- 
provement, the worth of which is capable of being brought to an 
experimental test, should be permitted, and even encouraged, to 
submit itself to that test. From such experiments the active portion 
of the working classes would derive lessons, which they would be 
slow to isarn from the teaching of persons supposed to have interests 
and prejudices adverse to their good ; would obtain the means of 
correcting, at no cost to society, whatever is now erroneous in their 
notions of the means of establishing their independence ; and of 
discovering the conditions, moral, intellectual, and industrial, which 
are indispensably necessary for efiecting without injustice, or for 
effecting at all, the social regeneration they aspire to.f 

The French law of partnership is superior to the English in per- 
mitting commandite ; and superior, in having no such unmanageable 
instrument as the Court of Chancery, all cases arising from com- 
mercial transactions being adjudicated in a comparatively cheap 
and expeditious manner by a tribunal of merchants. In other 
respects the French system was, and I believe still is, far worse than 
the English. A joint-stock company with limited responsibility 
cannot be formed without the express authorization of the depart- 

* [1865] It has been found possible to effect this through the Limited 
Liability Act, by erecting the capitalist and his workpeople into a Limited 
Company ; as proposed by Messrs. Briggs (supra, p. 77 i). 

f [1862] By an Act of the year 1852, called the Industrial and Provident 
Societies Act, for which the nation is indebted to the public-spirited exertions 
of Mr. Slaney, industrial associations of working people are admitted to the 
statutory privileges of Friendly Societies. This not only exempts them from 
the formalities applicable to joint-stock companies, but provides for the 
settlement of disputes among the partners without recourse to the Court of 
Chancery. There are still some defects in the provisions of this Act, which 
hamper the proceedings of the Societies in several respects ; as is pointed out 
in the Almanack of the Rochdale Equitable Pioneers for 1861. 



i'AKTJNJlJKSllii' 907 

ment of government called the Conseil d'Etat, a body of adminis- 
trators, generally entire strangers to industrial transactions, who 
have no interest in promoting enterprises, and are apt to think 
that the purpose of their institution is to restrain them ; whose 
consent cannot in any case be obtained without an amount of time 
and labour which is a very serious hindrance to the commencement 
of an enterprise, while the extreme uncertainty of obtaining that 
consent at all is a great discouragement to capitaUsts who would 
be willing to subscribe. In regard to joint-stock companies without 
limitation of responsibiUty, which in England exist in such numbers 
and are formed with such faciUty, these associations cannot, in 
France, exist at all ; for, in cases of unlimited partnership, the 
French law does not permit the division of the capital into transferable 
shares. 

The best existing [1848] laws of partnership appear to be those 
of the New England States. According to Mr. Carey,* " nowhere 
is association so Httle trammelled by regulations as in New England ; 
the consequence of which is, that it is carried to a greater extent 
there, and particularly in Massachusetts and Rhode Island, than 
in any other part of the world. In these states, the soil is covered 
with comfognies anonymes — chartered companies — for almost every 
conceivable purpose. Every town is a corporation for the manage- 
ment of its roads, bridges, and schools : which are, therefore, under 
the direct control of those who pay for them, and are consequently 
well managed. Academies and churches, lyceums and libraries, 
saving fund societies, and trust companies, exist in numbers pro- 
portioned to the wants of the people, and all are corporations. 
Every district has its local bank, of a size to suit its wants, the 
stpck of which is owned by the smaU capitalists of the neighbour- 
hood, and managed by themselves ; the consequence of which is, 
that in no part of the world is the system of banking so perfect — 
so Httle liable to vibration in the amount of loans — the necessary 
effect of which is, that in none is the value of property so Httle affected 
by changes in the amount or value of the currency resulting from 
the movements of their own banking institutions. In the two states 
to which we have particularly referred, they are almost two hundred 
in number. Massachusetts, alone, offers to our view fifty-three 
insurance offices, of various forms, scattered through the state, and 
all incorporated. Factories are incorporated, and are owned in 

♦ In a note appended to his translation of M. Coquelin's paper. 



908 BOOK V. CHAPTER IX. § 7 

sliares ; and every one that lias any part in the management of 
their concerns, from the purchase of the raw material to the sale 
of the manufactured article, is a part owner ; while every one 
employed in them has a prospect of becoming one, by the use of 
prudence, exertion, and economy. Charitable associations exist in 
large numbers, and all are incorporated. Fishing vessels are owned 
in shares by those who navigate them ; and the sailors of a whaUng 
ship depend in a great degree, if not altogether, upon the success 
of the voyage for their compensation. Every master of a vessel 
trading in the Southern Ocean is a part owner, and the interest 
he possesses is a strong inducement to exertion and economy, by 
aid of which the people of New England are rapidly driving out 
the competition of other nations for the trade of that part of the 
world. Wherever settled, they exhibit the same tendency to com- 
bination of action. In New York they are the chief owners of 
the lines of packet ships, which are divided into shares, owned 
by the shipbuilders, the merchants, the master, and the mates ; 
which last generally acquire the means of becoming themselves 
masters, and to this is due their great success. The system is the 
most perfectly democratic of any in the world. It affords to every 
labourer, every sailor, every operative, male or female, the prospect 
of advancement ; and its results are precisely such as we should 
have reason to expect. In no part of the world are talent, industry, 
and prudence, so certain to be largely rewarded." 

The cases of insolvency and fraud on the part of chartered 
companies in America, which have caused so much loss and so 
much scandal in Europe, did not occur in the part of the Union to 
which this extract refers, but in other States, in which the right 
of association is much more fettered by legal restrictions, and in 
which, accordingly, joint-stock associations are not comparable in 
number or variety to those of New England. Mr. Carey adds, 
" A careful examination of the systems of the several states, can 
scarcely, we think, fail to convince the reader of the advantage 
resulting from permitting men to determine among themselves the 
terms upon which they will associate, and allowing the associations 
that may be formed to contract with the public as to the terms 
upon which they will trade together, whether of the limited or 
unlimited liability of the partners." ^ This principle has been 

* [This sentence replaced in the 6th ed. (1865) the comment of the original : 
" and I concur in thinking that to this conclusion science and legislation must 
ultimately come."l 



INSOLVENCY y09 

adopted as the foimdatioii of all recent English legislation on the 
subject. 

§ 8. I proceed to the subject of Insolvency Laws. 

Good laws on this subject are important, first and principally, 
on the score of public morals ; which are on no point more under 
the influence of the law, for good and evil, than in a matter belonging 
so pre-eminently to the province of law as the preservation of 
pecuniary integrity. But the subject is also, in a merely economical 
point of view, of great importance. First, because the economical 
well-being of a people, and of mankind, depends in an especial 
manner upon their being able to trust each other's engagements. 
Secondly, because one of the risks, or expenses, of industrial opera- 
tions^ is the risk or expense of what are commonly called bad debts, 
and every saving which can be effected in this liability is a diminution 
of cost of production ; by dispensing with an item of outlay which 
in no way conduces to the desired end, and which must be paid 
for either by the consumer of the commodity, or from the general 
• profits of capital, according as the burthen is peculiar or general. 

The laws and practice of nations on this subject have almost 
always been in extremes. The ancient laws of most countries were 
all severity to the debtor. They invested the creditor with a power 
of coercion, more or less tyrannical, which he might use against his 
insolvent debtor, either to extort the surrender of hidden property, 
or to obtain satisfaction of a vindictive character, which might 
console him for the non-payment of the debt. This arbitrary power 
has extended, in some countries, to making the insolvent debtor 
serve the creditor as his slave : in which plan there were at least 
some grains of common sense, since it might possibly be regarded 
as a scheme for making him work out the debt by his labour. In 
England the coercion assumed the milder form of ordinary imprison- 
ment. The one and the other were the barbarous expedients of a 
rude age, repugnant to justice, as well as to humanity. Unfortu- 
nately the reform of them, Hke that of the criminal law generally, 
has been taken in hand as an afiair of humanity only, not of justice : 
and the modish humanity of the present time, which is essentially 
a thing of one idea,^ has in this, as in other cases, gone iato a violent 

* [The original parenthesis " (and is indeed little better than a timid 
thrinking from the infliction of anything like pain, next neighbour to the 
cowardice which shrinks from unnecessary endurance of it) " was omitted 
from the 3rd ed. (1852).] 



910 BOOK V. CHAPTER IX. § 8 

reaction against the ancient severity, and might almost be supposed 
to see in the fact of having lost or squandered other people's property, 
a pecuhar titie to indulgence. Everything in the law which attached 
disagreeable consequences to that fact was gradually relaxed, or 
entirely got rid of : until the demorahzing effects of this laxity 
became so evident as to determine, by more recent legislation, a 
salutary though very insufficient movement in the reverse direction.^ 
The indulgence of the laws to those who have made themselves 
unable to pay their just debts is usually defended on the plea that 
the sole object of the law should be, in case of insolvency, not to 
coerce the person of the debtor, but to get at his property, and 
distribute it fairly among the creditors. Assuming that this is and 
ought to be the sole object, the mitigation of the law was in the first 
instance carried so far as to sacrifice that object. Imprisonment 
at the discretion of a creditor was really a powerful engine for 
extracting from the debtor any property which he had concealed 
or otherwise made away with ; and it remains to be shown by 
experience whether, in depriving creditors of this instrument, the 
law, even as last amended, has furnished ' them with a sufficient 
equivalent.2 But the doctrine, that the law has done all that ought 
to be expected from it, when it has put the creditors in possession 
of the property of an insolvent, is in itself a totally inadmissible 
piece of spurious humanity. It is the business of law to prevent 
wrong-doing, and not simply to patch up the consequences of it 
when it has been committed. The law is bound to take care that 
insolvency shall not be a good pecuniary speculation ; that men 
shall not have the privilege of hazarding other people's property 
without their knowledge or consent, taking the profits of the enter- 
prise if it is successful, and if it fails throwing the loss upon the 

* [So since the 5th ed. (1862). The original ran : " Everything . . . has 
been gradually relaxed and much of it entirely got rid of. Because insolvency 
was formerly treated as if it were necessarily a crime, everything is now done 
to make it, if possible, not even a misfortune." The present reference to an 
opposite movement " by a recent enactment " was introduced in the 3rd ed 
(1852), and spoken of as " partial but very salutary."] 

2 [So since the 3rd ed. (1852). The original ran : " In depriving creditors 
of this instrument, the law has not furnished them with a sufficient equivalent " : 
and went on as follows : " And it is seldom difficult for a dishonest debtor, 
by an understanding with one or more of his creditors, or by means of pretended 
creditors set up for the purpose, to abstract a part, perhaps the greatest part, 
of his assets, from the general fund, through the forms of the law itself. The 
facility and frequency of such frauds are a subject of much complaint, and 
their prevention demands a vigorous effort of the legislature, under the guidance 
of judicious persons practically conversant with the subject."] 



mSOLVENCT 9ii 

rightful owners ; and that they shall not find it answer to make 
themselves unable to pay their just debts, by spending the money 
of their creditors in personal indulgence. It is admitted that what 
is technically called fraudulent bankruptcy, the false pretence of 
inabiUty to pay, is, when detected, properly subject to punishment.''^ 
But does it follow that insolvency is not the consequence of mis- 
conduct because the inability to pay may be real ? If a man has 
been a spendthrift, or a gambler, with property on which his creditors 
had a prior claim, shall he pass scot-free because the mischief is 
consummated and the money gone ? Is there any very material 
difference in point of morality between this conduct, and those 
other kinds of dishonesty which go by the names of fraud and 
embezzlement ? 

Such cases are not a minority, but a large majority among 
insolvencies. The statistics of bankruptcy prove the fact. " By 
far the greater part of all insolvencies arise from notorious miscon- 
duct ; the proceedings of the Insolvent Debtors Court and of the 
Bankruptcy Court will prove it. Excessive and unjustifiable over- 
trading, or most absurd speculation in commodities, merely because 
the poor speculator ' thought they would get up,' but why he 
thought so he cannot tell ; speculation in hops, in tea, in silk, in 
corn — things with which he is altogether unacquainted ; wild and 
absurd investments in foreign funds, or in joint stocks ; these are 
among the most innocent causes of bankruptcy." * The experienced 
and intelligent writer from whom I quote corroborates his assertion 
by the testimony of several of the ofiicial assignees of the Bank- 
ruptcy Court. One of them says, " As far as I can collect from the 
books and documents furnished by the bankrupts, it seems to me 
that," in the whole number of cases which occurred during a given 
time in the c^ourt to which he was attached, " fourteen have been 
ruined by speculations in things with which they were unacquainted ; 
three by neglecting book-keeping ; ten by trading beyond their 
capital and means, and the consequent loss and expense of accom- 
modation-bills ; forty-nine by expending more than they could 
reasonably hope their profits would be, though their business 
yielded a fair return ; none by any general distress, or the falling 
off of any particular branch of trade." Another of these officers 

^ [So since the Sj-d ed. The original ran : " The humanitarians do not deny 
fc\iat what is technically . . . pay, may reasonably, when detected, be " &c.] 

* From a volume published in 1845, entitled. Credit the Life of Commerce 
by J. H. Elhott. 



912 BOOK V. CHAPTER IX. § 8 

says that, during a period of eighteen months, " fifty-two cases of 
bankruptcy have come under my care. It is my opinion that 
thirty-two of these have arisen from an imprudent expenditure, 
and five partly from that cause, and partly from a pressure on the 
business in which the bankrupts were employed. Fifteen I attribute 
to improvident speculations, combined in many instances with an 
extravagant mode of life." 

To these citations the author adds the following statements 
from his personal means of knowledge. " Many insolvencies are 
produced by tradesmen's indolence ; they keep no books, or at 
least imperfect ones, which they never balance ; they never take 
stock ; they employ servants, if their trade be extensive, whom 
they are too indolent even to supervise, and then become insolvent. 
It is not too much to say, that one-half of all the persons engaged 
in trade, even in London, never take stock at all : they go on year 
after year without knowing how their affairs stand, and at last, like 
the child at school, they find to their surprise, but one halfpenny 
left in their pocket. I will venture to say that not one-fourth 
of all the persons in the provinces, either manufacturers, trades- 
men, or farmers, ever take stock ; nor in fact does one-half of 
them ever keep account-books deserving any other name than 
memorandum books. I know sufficient of the concerns of five 
hundred small tradesmen in the provinces, to be enabled to say, 
that not one-fifth of them ever take stock, or keep even the most 
ordinary accounts. I am prepared to say of such tradesmen, from 
carefully prepared tables, giving every advantage where there has 
been any doubt as to the causes of their insolvency, that where 
nine happen from extravagance or dishonesty, one " at most " may 
be referred to misfortune alone." * 

Is it rational to expect among the trading classes any high sense 
of justice, honour, or integrity, if the law enables men who act im 
this manner to shuffle off the consequences of their misconduct 
upon those who have been so unfortunate as to trust them ; andi 
practically proclaims that it looks upon insolvency thus produced 
as a "misfortune," not an offence? 

It is, of course, not denied, that insolvencies do arise from causes^ 
beyond the control of the debtor, and that, in many more cases,, 
his culpability is not of a high order ; and the law ought to make a, 
distinction in favour of such cases, but not without a searching, 
investigation ; nor should the case ever be let go without having. 

* Pp. 50-1. 



INSOLVENCY 913 

ascertained, in the most complete manner practicable, not the fact 
of insolvency only, but the cause of it. To have been trusted with 
money or money's worth, and to have lost or spent it, is 'prima facie 
evidence of something wrong : and it is not for the creditor to prove, 
which he cannot do in one case out of ten, that there has been crimi- 
nality, but for the debtor to rebut the presumption, by laying open the 
whole state of his afiairs, and showing either that there has been no 
misconduct, or that the misconduct has been of an excusable kind. 
If he fail in this, he ought never to be dismissed without a punishment 
proportioned to the degree of blame which seems justly imputable 
to him ; which punishment, however, might be shortened or miti- 
gated in proportion as he appeared likely to exert himself in repairing 
the injury done. 

It is a common argument with those who approve a relaxed 
system of insolvency laws, that credit, except in the great operations 
of commerce, is an evil ; and that to deprive creditors of legal redress 
is a judicious means of preventing credit from being given. That 
which is given by retail dealers to unproductive consumers is, no 
doubt, to the excess to which it is carried, a considerable evil. This, 
however, is only true of large, and especially of long, credits ; for 
there is credit whenever goods are not paid for before they quit the 
shop, or, at least, the custody of the seller ; and there would be 
much inconvenience in putting an end to this sort of credit. But 
a large proportion of the debts on which insolvency laws take 
effect are those due by small tradesmen to the dealers who supply 
them : and on no class of debts does the demorahzation occasioned 
by a bad state of the law operate more perniciously. These are 
commercial credits, which no one wishes to see curtailed ; their 
existence is of great importance to the general industry of the 
country, and to numbers of honest, well-conducted persons of small 
means, to whom it would be a great injiuy that they should be 
prevented from obtaining the accommodation they need, and 
would not abuse, through the omission of the law to. provide just 
remedies against dishonest or reckless borrowers. 

But though it were granted that retail transactions, on any 
footing but that of ready money payment, are an evil, and their 
entire suppression a fit subject for legislation to aim at; a worse 
mode of compassing that object could scarcely be invented, than to 
permit those who have been trusted by others to cheat and rob 
them with impunity. The law does not generally select the vices of 
mankind as the appropriate instrument for inflicting chastisement 



914 BOOK V. CHAPTER IX. § 8 

on the comparatively innocent. When it seeks to discourage any 
course of action, it does so by applying inducements of its own, not 
by outlawing those who act in the manner it deems objectit)nable, 
and letting loose the predatory instincts of the worthless part of 
mankind to feed upon them. If a man has committed murder, the 
law condemns him to death : but it does not promise immunity to 
anybody who may kill him for the sake of taking his purse. The 
offence of believing another's word, even rashly, is not so heinous 
that, for the sake of discouraging it, the spectacle should be brought 
home to every door, of triumphant rascaUty, with the law on its 
side, mocking the victims it has made. This pestilent example has 
been very widely exhibited since the relaxation of the insolvency 
laws. It is idle to expect that, even by absolutely depriving creditors 
of all legal redress, the kind of credit which is considered objectionable 
would really be very much checked. Rogues and swindlers are 
still an exception among mankind, and people will go on trusting each 
other's promises. Large dealers, in abundant business, would refuse 
credit, as many of them already do : but in the eager competition 
of a great town, or the dependent position of a village shopkeeper, 
what can be expected from the tradesman to whom a single customer 
is of importance, the beginner, perhaps, who is striving to get into 
business ? He will take the risk, even if it were still greater ; he is 
ruined if he cannot sell his goods, and he can but be ruined if he is 
defrauded. Nor does it avail to say, that he ought to make proper 
inquiries, and ascertain the character of those to whom he supplies 
goods on trust. In some of the most flagrant cases of profligate 
debtors which have come before the Bankruptcy Court, the swindler 
had been able to give, and had given, excellent references.* 

* The following extracts from the French Code de Commerce (the trans- 
lation is that of Mr. Fane) show the great extent to which the just distinctions 
are made, and the proper investigations provided for, by French law. The 
word banqueroute, which can only be translated by bankruptcy, is, however, 
confined in France to culpable insolvency, which is distinguished into simple 
bankruptcy and fraudulent bankruptcy. The following are cases of simple 
bankruptcy : — 

" Every insolvent who, in the investigation of his affairs, shall appear 
chargeable with one or more of the following offences, shall be proceeded against 
as a simple bankrupt : — 

" If his house expenses, which he is bound to enter regularly in a day-book» 
appear excessive : 

"If he had spent considerable sums at play, or in operations of pure 
hazard : 

" If it shall appear that he has borrowed largely, or resold merchandize at 
a loss, or below the current price, after it appeared by his last account-taking 
that his debts exceeded his assets by one-half : 



INSOLVENCY 915 

" If he has issued negotiable securities to three times the amount of his 
available assets, according to his last account- taking. 

" The following may also be proceeded against as simple bankrupts : — 

" He who has not declared his own insolvency in the manner prescribed 
by law : 

" He who has not come in and surrendered within the time limited, having 
no legitimate excuse for his absence : 

" He who either produces no books at all, or produces such as have been 
irregularly kept, and this although the irregularities may not indicate fraud." 

The penalty for " simple bankruptcy " is imprisonment for a term of not 
less than one month, nor more than two years. The following are cases of 
fraudulent bankruptcy, of which the punishment is travaux forces (the galleys) 
for a term : — 

" If he has attempted to account for his property by fictitious expenses and 
losses, or if he does not fully account for all his receipts : 

" If he has fraudulently concealed any sum of money or any debt due to 
him, or any merchandize or other movables : 

" If he has made fraudulent sales or gifts of his property : 

" If he has allowed fictitious debts to be proved against his estate : 

"If he has been entrusted with property, either merely to keep, or with 
special directions as to its use. and has nevertheless appropriated it to his own 
use : 

" If he has purchased real property in a borrowed name : 

" If he has concealed his books. 

" The following may also be proceeded against in a similar way : — 

" He who has not kept books, or whose books shall not exhibit his real 
situation as regards his debts and credits : 

" He who, having obtained a protection [sauf -conduit), shall not have duly 
attended." 

These various provisions relate only to commercial insolvency. The laws 
in regard to ordinary debts are considerably more rigorous to the debtor. 



CHAPTER X 

OF INTERFERENCES OP GOVERNMENT GROUNDED ON 
ERRONEOUS THEORIES 

§ 1. From the necessary functions of government, and the 
effects produced on the economical interests of society by their good 
or ill discharge, we proceed to the functions which belong to what 
I have termed, for want of a better designation, the optional class ; 
those which are sometimes assumed by governments and sometimes 
not, and which it is not unanimously admitted that they ought to 
exercise. 

Before entering on the general principles of the question, it will 
be advisable to clear from our path all those cases in which govern- 
ment interference works ill because grounded on false views of the 
subject interfered with. Such cases have no connexion with any 
theory respecting the proper Hmits of interference. There are some 
things with which governments ought not to meddle, and other 
things with which they ought ; but whether right or wrong in itself, 
the interference must work for ill, if government, not understanding 
the subject which it meddles with, meddles to bring about a result 
which would be mischievous. We will therefore begin by passing 
in review various false theories, which have from time to time formed 
the ground of acts of government more or less economically 
injurious. 

Former writers on poUtical economy have found it needful to 
devote much trouble and space to this department of their subject. 
It bas now happily become possible, at least in our own country, 
greatly to abridge this purely negative part of our discussions. 
The false theories of political economy which have done so much 
mischief in times past, are entirely discredited among all who 
have not lagged behind the general progress of opinion ; and few 
of the enactments which were once grounded on those theories still 
help to deform the statute-book. As the principles on which thei? 



PROTECTIONISM 917 

condemnation rests have been fully set forth in other parts of this 
treatise, we may here content ourselves with a few brief indications. 

Of these false theories, the most notable is the doctrine of 
Protection to Native Industry ; a phrase meaning the prohibition, 
or the discouragement by heavy duties, of such foreign commodities 
as are capable of being produced at home. If the theory involved 
in this system had been correct, the practical conclusions grounded 
on it would not have been unreasonable. The theory was, that to 
buy things produced at home was a national benefit, and the intro- 
duction of foreign commodities generally a national loss. It being 
at the same time evident that the interest of the consumer is to buy 
foreign commodities in preference to domestic whenever they are 
either cheaper or better, the interest of the consumer appeared in 
this respect to be contrary to the pubhc interest ; he was certain, 
if left to his own incHnations, to do what according to the theory was 
injurious to the pubUc. 

It was shown, however, in our analysis of the effects of inter- 
national trade, as it had been often shown by former writers, that 
the importation of foreign commodities, in the common course of 
traffic, never takes place, except when it is, economically speaking, 
a national good, by causing the same amount of commodities to ba 
obtained at a smaller cost of labour and capital to the country. 
To prohibit, therefore, this importation, or impose duties which 
prevent it, is to render the labour and capital of the country less 
efficient in production than they would otherwise be ; and compel 
a waste of the difference between the labour and capital necessary 
for the home production of the commodity and that which is required 
for producing the things with which it can be purchased from abroad. 
The amount of national loss thus occasioned is measured by the 
excess of the price at which the commodity is produced, over that 
at which it could be imported. In the case of manufactured goods, 
the whole difference between the two prices is absorbed in indemni- 
fying the producers for waste of labour, or of the capital which 
supports that labour. Those who are supposed to be benefited, 
namely, the makers of the protected articles, (unless they form an 
exclusive company, and have a monopoly against their own country- 
men as well as against foreigners,) do not obtain higher profits than 
other people. All is sheer loss, to the country as well as to the 
consumer. When the protected article is a product of agriculture 
• — the waste of labour not being incurred on the whole produce, 
but only on what may be called the last instalment of it — the extra 



918 BOOK V. CHAPTER X. § 1 

price is only in part an indemnity for waste, the remainder being a 
tax paid to tlie landlords. 

The restrictive and prohibitory policy was originally grounded 
on what is called the Mercantile System, which, representing the 
advantage of foreign trade to consist solely in bringing money into 
the country, gave artificial encouragement to exportation of goods, 
and discountenanced their importation. The only exceptions to the 
system were those required by the system itself. The materials and 
instruments of production were the subjects of a contrary policy, 
directed, however, to the same end ; they were freely imported, and 
not permitted to be exported, in order that manufacturers, being 
more cheaply suppHed with the requisites of manufacture, might 
be able to sell cheaper, and therefore to export more largely. For a 
similar reason, importation was allowed, and even favoured, when 
confined to the productions of countries which were supposed to 
take from the country still more than it took from them, thus 
enriching it by a favourable balance of trade. As part of the same 
system, colonies were founded for the supposed advantage of 
compelling them to buy our commodities, or at all events not to 
buy those of any other country : in return for which restriction 
we were generally wilhng to come under an equivalent obHgation with 
respect to the staple productions of the colonists. The consequences 
of the theory were pushed so far, that it was not unusual even to give 
bounties on exportation, and induce foreigners to buy from us rather 
than from other countries, by a cheapness which we artificially 
produced, by paying part of the price for them out of our own 
taxes. This is a stretch beyond the point yet reached by any 
private tradesman in his competition for business. No shop- 
keeper, I should think, ever made a practice of bribing customers 
by selhng goods to them pt a permanent loss, making it up to himself 
from other funds in his possession. 

The principle of the Mercantile Theory is now given up even by 
writers and governments who still cHng to the restrictive system. 
Whatever hold that system has over men's minds, independently 
of the private interests exposed to real or apprehended loss by its 
abandonment, is derived from fallacies other than the old notion of 
the benefits of heaping up money in the country. The most effective 
of these is the specious plea of employing our own countrymen and 
our national industry, instead of feeding and supporting the industry 
of foreigners. The answer to this, from the principles laid down in 
former chapters, is evident. Without reverting to the fundamental 



PROTECTIONISM 919 

theorem discussed in an early part of the present treatise,* respecting 

the nature and sources of employment for labour, it is sufficient to 

say, what has usually been said by the advocates of free trade, that 

the alternative is not between employing our own people and 

foreigners, but between employing one class and another of our 

own people. The imported commodity is always paid for, directly 

or indirectly, with the produce of our own industry : that industry 

being at the same time rendered more productive, since, with the 

same labour and outlay, we are enabled to -possess ourselves of a 

greater quantity of the article. Those who have not well considered 

the subject are apt to suppose that our exporting an equivalent in 

our own produce for the foreign articles we consume depends on 

contingencies — on the consent of foreign countries to make some 

corresponding relaxation of their own restrictions, or on the question 

whether those from whom we buy are induced by that circumstance 

to buy more from us ; and that, if these things, or things equivalent 

to them, do not happen, the payment must be made in money. 

Now, in the first place, there is nothing more objectionable in a money 

payment than in payment by any other medium, if the state of the 

market makes it the most advantageous remittance ; and the money 

itself was first acquired, and would again be replenished, by the 

export of an equivalent value of our own products. But, in the 

next place, a very short interval of paying in money would so lower 

prices as either to stop a part of the importation or raise up a foreign 

demand for our produce sufficient to pay for the imports. I grant 

that this disturbance of the equation of international demand 

would be in some degree to our disadvantage, in the purchase of other 

imported articles ; and that a country which prohibits some foreign 

commodities, does, cceteris paribus, obtain those which it does not 

prohibit at a less price than it would otherwise have to pay. To 

express the same thing in other words ; a country which destroys 

or prevents altogether certain branches of foreign trade, thereby 

annihilating a general gain to the world, which would be shared in 

some proportion between itself and other countries — does, in some 

circumstances, draw to itself, at the expense of foreigners, a larger . 

share than would else belong to it of the gain arising from that 

portion of its foreign trade which it suffers to subsist. But even this 

it can only be enabled to do, if foreigners do not maintain equivalent 

prohibitions or restrictions against its commodities. In any case, 

the justice or expediency of destroying one of two gains, in order 

* Supra, pp. 79 et seqq. 



920 BOOK V. CHAPTER X. § 1 

to engross a rather larger share of the other, does not require much 
discussion : the gain, too, which is destroyed, being, in proportion 
to the magnitude of the transactions, the larger of the two, since 
it is the one which capital, left to itself, is supposed to seek by 
preference. 

Defeated as a general theory, the Protectionist doctrine finds 
support in some particular cases, from considerations which, when 
really in point, involve greater interests than mere saving of labour ; 
the interests of national subsistence and of national defence. The 
discussions on the Corn Laws have familiarized everybody with the 
plea, that we ought to be independent of foreigners for the food of 
the people ; and the Navigation Laws were grounded, in theory 
and profession, on the necessity of keeping up a " nursery of sea- 
men " for the navy. On this last subject I at once admit, that the 
object is worth the sacrifice ; and that a country exposed to invasion 
by sea, if it cannot otherwise have sufficient ships and sailors of its 
own to secure the means of manning on an emergency an adequate 
fleet, is quite right in obtaining those means, even at an economical 
sacrifice in point of cheapness of transport. When the Enghsh 
Navigation Laws were enacted, the Dutch, from their maritime 
skill and their low rate of profit at home, were able to carry for other 
nations, England included, at cheaper rates than those nations could 
carry for themselves : which placed all other countries at a great 
comparative disadvantage in obtaining experienced seamen for 
their ships of war. The Navigation Laws, by which this deficiency 
was remedied, and at the same time a blow struck against the 
maritime power of a nation with which England was then frequently 
engaged in hostihties, were probably, though economically disadvan- 
tageous, politically expedient. But English ships and sailors can 
now navigate as cheaply as those of any other country ; maintain- 
ing at least an equal competition with the other maritime nations 
even in their own trade. The ends which may once have justified 
Navigation Laws require them no longer, and afforded no reason 
for maintaining this invidious exception to the general rule of free 
trade. 

With regard to subsistence, the plea of the Protectionists has been 
so often, and so triumphantly met, that it requires Httle notice here. 
That country is the most steadily as well as the most abundantly 
supplied with food which draws its supplies from the largest surface. 
It is ridiculous to found a general system of poHcy on so improbable 
a danger as that of being at war with all the nations of the world 



at once ; or to suppose that, even if inferior at sea, a whole country 
could be blockaded like a town, or that the growers of food in other 
countries would not be as anxious not to lose an advantageous 
market, as we should be not to be deprived of their corn. On the 
subject, however, of subsistence, there is one point which deserves 
more especial consideration. In cases of actual or apprehended 
scarcity, many countries of Europe are accustomed to stop the 
exportation of food. Is this, or not, sound poHcy ? There can be no 
doubt that in the present state of international morahty, a people 
cannot, any more than an individual, be blamed for not starving 
itself to feed others. But if the greatest amount of good to mankind 
on the whole were the end aimed at in the maxims of international 
conduct, such collective churhshness would certainly be condemned 
by them. Suppose that in ordinary circumstances the trade in food 
were perfectly free, so that the price in one country could not 
habitually exceed that in any other by more than the cost of carriage, 
together with a moderate profit to the importer. A general scarcity 
ensues, affecting all countries, but in unequal degrees. If the price 
rose in one country more than in others, it would be a proof that in 
that country the scarcity was severest, and that by permitting 
food to go freely thither from any other country, it would be spared 
from a less urgent necessity to reheve a greater. When the interests, 
therefore, of all countries are considered, free exportation is desirable. 
To the exporting country considered separately, it may, at least on 
^he particular occasion, be an inconvenience : but taking into accouni 
that the country which is now the giver wiU in some future season 
be the receiver, and the one that is benefited by the freedom, I 
cannot but think that even to the apprehension of food-rioters it 
might be made apparent, that in such cases they should do to others 
what they would wish done to themselves. 

In countries in which the Protection theory is [1848] decHning, 
but not yet given up, such as the United States, a doctrine has come 
into notice which is a sort of compromise between free trade and 
restriction, namely, that protection for protection's sake is improper, 
but that there is nothing objectionable in having as much protection 
as may incidentally result from a tariff framed solely for revenue. 
Even in England, regret is sometimes expressed that a " moderate 
fixed duty " was not preserved on corn, on account of the revenue 
it would yield. Independently, however, of the general impolicy 
of taxes on the necessaries of fife, this doctrine overlooks the fact, 
that revenue is received only on the quantity imported, but that the 



^nr J30UK V. UiriAiTJiK A. § 1 

tax is paid on the entire quantity consumed. To make the public 
pay much that the treasury may receive a little, is not an eligible 
mode of obtaining a revenue. In the case of manufactured articles 
the doctrine involves a palpable inconsistency. The object of the 
duty, as a means of revenue, is inconsistent with its affording, even 
incidentally, any protection. It can only operate as protection in 
so far as it prevents importation ; and to whatever degree it prevents 
importation it aflords no revenue. 

The only case in which, on mere principles of pohtical economy, 
protecting duties can be defensible, is when they are imposed 
temporarily (especially in a young and rising nation) in hopes of 
naturaUzing a foreign industry, in itself perfectly suitable to the 
circumstances of the country. The superiority of one country over 
another in a branch of production often arises only from having 
begun it sooner. There may be no inherent advantage on one part, 
or disadvantage on the other, but only a present superiority of 
acquired skill and experience. A country which has this skill and 
experience yet to acquire, may in other respects be better adapted 
to the production than those which were earlier in the field : and 
besides, it is a just remark of Mr. Rae, that nothing has a greater 
tendency to promote improvements in any branch of production 
than its trial under a new set of conditions. But it cannot 
be expected that individuals should, at their own risk, or rather 
to their certain loss, introduce a new manufacture, and bear the 
burthen of carrying it on until the producers have been educated 
up to the level of those with whom the processes are traditional. A 
protecting duty, continued for a reasonable time, might ^ sometimes 
be the least inconvenient mode in which the nation can tax itself 
for the support of such an experiment. But it is essential that the 
protection should be confined to cases in which there is good ground 
of assurance that the industry which it fosters will after a time be 
able to dispense with it; nor should the domestic producers ever 
be allowed to expect that it will be continued to them beyond 
the time necessary for a fair trial of what they are capable of 
accomplishing. 

2 The only writer, of any reputation as a pohtical economist, 
who now [1865] adheres to the Protectionist doctrine, Mr. H. C. 
Carey, rests its defence, in an economic point of view, principally on 

* [The " will " of the original (1848) text was changed into " might " in the 
7th ed. (1871), and " it is essential that " was inserted in the next sentence.] 
2 [The next three paragraphs were added in the 6th ed. (1865).] 



PROTECTIONISM S2T 

two reasons. One is tlie great saving in* cost of carriage, consequent 
on producing commodities at or very near to the place where they 
are to be consumed. The whole of the cost of carriage, both on the 
commodities imported and on those exported in exchange for them, 
he regards as a direct burthen on the producers, and not, as is 
obviously the truth, on the consumers. On whomsoever it falls, it 
is, without doubt, a burthen on the industry of the world. But it is 
obvious (and that Mr. Carey does not see it, is one of the many 
surprising things in his book) that the burthen is only borne for a 
more than equivalent advantage. If the commodity is bought in 
a foreign country with domestic produce in spite of the double cost 
of carriage, the fact proves that, heavy as that cost may be, the 
saving in cost of production outweighs it, and the collective labour 
of the country is on the whole better remunerated than if the article 
were produced at home. Cost of carriage is a natural protecting duty, 
which free trade has no power to abrogate : and unless America 
gained more by obtaining her manufactures through the medium of 
her corn and cotton than she loses in cost of carriage, the capital 
employed in producing corn and cotton in annually increased quan- 
tities for the foreign market would turn to manufactures instead. 
The natural advantages attending a mode of industry in which 
there is less cost of carriage to pay, can at most be only a justification 
for a temporary and merely tentative protection. The expenses of 
production being always greatest at first, it may happen that the home 
production, though really the most advantageous, may not become 
so until after a certain duration of pecuniary loss, which it is not 
to be expected that private speculators should incur in order that 
their successors may be benefited by their ruin. I have therefore 
conceded that in a new country a temporary protecting duty may 
sometimes be economically defensible ; on condition, however, that 
it be strictly limited in point of time, and provision be made that 
during the latter part of its existence it be on a gradually decreasing 
scale. Such temporary protection is of the same nature as a patent, 
and should be governed by similar conditions. 

The remaining argument of Mr. Carey in support of the economic 
benefits of Protectionism appHes only to countries whose exports 
consist of agricultural produce. He argues, that by a trade of this 
description they actually send away their soil : the distant consumers 
not giving back to the land of the country, as home consumers 
would do, the fertilizing elements which they abstract from it. This 
argument deserves attention on account of the physical truth on 



924 BOOK V. CHAPTER X. § 1 

which it is founded ; a truth which has only lately come to be 
understood, but which is henceforth destined to be a permanent 
element in the thoughts of statesmen, as it must always have been 
in the destinies of nations. To the question of Protectionism, how- 
ever, it is irrelevant. That the immense growth of raw produce 
in America to be consumed in Europe is progressively exhausting 
the soil of the Eastern, and even of the older Western States, and 
that both are already far less productive than formerly, is credible 
in itself, even if no one bore witness to it. But what I have already 
said respecting cost of carriage, is true also of the cost of manuring. 
Free trade does not compel America to export corn : she would 
cease to do so if it ceased to be to her advantage. As, then, she 
would not persist in exporting raw produce and importing manu- 
factures any longer than the labour she saved by doing so exceeded 
what the carriage cost her, so when it became necessary for her to 
replace in the soil the elements of fertility which she had sent away, 
if the saving in cost of production were more than equivalent to 
the cost of carriage and of manure together, manure would be 
imported ; and if not, the export of corn would cease. It is evident 
that one of these two things would already have taken place, if 
there had not been near at hand a constant succession of new soils, 
not yet exhausted of their fertility, the cultivation of which enables 
her, whether judiciously or not, to postpone the question of manure. 
As soon as it no longer answers better to break up new soils than to 
manure the old, America will either become a regular importer of 
manure, or will, without protecting duties, grow corn for herself 
only, and manufacturing for herself, will make her manure, as Mr. 
Carey desires, at home.* 

For these obvious reasons, I hold Mr. Carey's economic arguments 

* To this Mr. Carey would reply (indeed he has already so replied in advance) 
that of all commodities manure is the least susceptible of being conveyed to a 
distance. This is true of sewage, and of stable manure, but not true of the 
ingredients to which those manures owe their efficiency. These, on the contrary, 
are chiefly substances containing great fertilizing power in small bulk ; sub- 
stances of which the human body requires but a small quantity, and hence 
peculiarly susceptible of being imported ; the mineral alkalies and the phos- 
phates. The question indeed mainly concerns the phosphates, for of the 
alkalies, soda is procurable everywhere ; while potass, being one of the con- 
stituents of granite and the other feldspathic rocks, exists in many subsoils, 
by whose progressive decomposition it is renewed, a large quantity also being 
brought down in the deposits of rivers. As for the phosphates, they, in the 
very convenient form of pulverized bones, are a regular article of commerce, 
largely imported into England ; as they are sure to be into any country where 
the conditions of industry make it worth while to pay the price. 



PROTECTIONISM 925 

for Protectionism to be totally invalid. The economic, however, 
is far from being the strongest point of his case. American Protec- 
tionists often reason extremely ill; but it is an injustice to them to 
suppose that their protectionist creed rests upon nothing superior 
to an economic blunder. Many of them have been led to it much 
more by consideration for the higher interests of humanity than 
by purely economic reasons. They, and Mr. Carey at their head, 
deem it a necessary condition of human improvement that towns 
should abound ; that men should combine their labour, by means 
of interchange — with near neighbours, with people of pursuits, 
capacities, and mental cultivation different from their own, suffi- 
ciently close at hand for mutual sharpening of wits and enlarging of 
ideas — rather than with people on the opposite side of the globe. 
They believe that a nation all engaged in the same, or nearly the 
same, pursuit — a nation all agricultural — cannot attain a high state 
of civiUzation and culture. And for this there is a great foundation 
of reason. If the difficulty can be overcome, the United States, 
with their free institutions, their universal schooling, and their 
omnipresent press, are the people to do it ; but whether this is 
possible or not is still a problem. So far, however, as it is an object 
to check the excessive dispersion of the population, Mr. Wakefield 
has pointed out a better way ; to modify the existing method of 
disposing of the unoccupied lands, by raising the price, instead of 
lowering it, or giving away the land gratuitously, as is largely done 
since the passing of the Homestead Act. To cut the knot in Mr. 
Carey's fashion, by Protectionism, it would be necessary that Ohio 
and Michigan should be protected against Massachusetts as well as 
against England : for the manufactories of New England, no more 
than those of the old country, accomplish his desideratum of bringing 
a manufacturing population to the doors of the Western farmer. 
Boston and New York do not supply the want of local towns to the 
Western prairies, any better than Manchester ; and it is as difficult 
to get back the manure from the one place as from the other. 

There is only one part of the Protectionist scheme which requires 
any further notice : its policy towards colonies, and foreign depen- 
dencies ; that of compelling them to trade exclusively with the 
dominant country. A country which thus secures to itself an extra 
foreign demand for its commodities, undoubtedly gives itself some 
advantage in the distribution of the general gains of the commercial 
world. Since, however, it causes the industry and capital of the 
colony to be diverted from channels which are proved to be the most 



926 BOOK V. CHAPTER X. § 2 

productive, inasmucli as they are those into which industry and 
capital spontaneously tend to flow ; there is a loss, on the whole, 
to the productive powers of the world, and the mother country does 
not gain so much as she makes the colony lose. If, therefore, the 
mother country refuses to acknowledge any reciprocity of obHga- 
tion, she imposes a tribute on the colony in an indirect^mode, greatly 
more oppressive and injurious than the direct. But if, with a more 
equitable spirit, she submits herself to corresponding restrictions for 
the benefit of the colony, the result of the whole transaction is the 
ridiculous one, that each party loses much in order that the other 
may gain a little.^ 

§ 2. Next to the system of Protection, among mischievous 
interferences with the spontaneous course of industrial transactions, 
may be noticed certain interferences with contracts. One instance is 
that of the Usury Laws. These originated in a religious prejudice 
against receiving interest on money, derived from that fruitful 
source of mischief in modern Europe, the attempted adaptation to 
Christianity of doctrines and precepts drawn from the Jewish law. 
In Mahomedan nations the receiving of interest is formally inter- 
dicted, and rigidly abstained from : and Sismondi has noticed, as 
jne among the causes of the industrial inferiority of the Catholic, 
compared with the Protestant parts of Europe, that the Catholic 
Church in the middle ages gave its sanction to the same prejudice ; 
which subsists, impaired but not destroyed, wherever that rehgion is 
acknowledged. Where law or conscientious scruples prevent lend- 
ing at interest, the capital which belongs to persons not in business 
is lost to productive purposes, or can be apphed to them only in 
peculiar circumstances of personal connexion, or by a subterfuge. 
Industry is thus Hmited to the capital of the undertakers, and to. what 
they can borrow from persons not bound by the same laws or rehgion 
as themselves. In Mussulman countries the bankers and money 
dealers are either Hindoos, Armenians, or Jews. 

In more improved countries, legislation no longer discountenances 
the receipt of an equivalent for money lent ; but it has everywhere 
interfered with the free agency of the lender and borrower, by fixing 
a legal Hmit to the rate of interest, and making the receipt of more 
than the appointed maximum a penal offence. This restriction, 
though approved by Adam Smith, has been condemned by aU 

* [See Appendix II. Protection.] 



enlightened persons since the triumphant onslaught made upon it by 
Bentham in his Letters on Usury, which may still be referred to as 
the best extant writing on the subject. 

Legislators may enact and maintain Usury Laws from one 
of two motives : ideas of pubHc poUcy, or concern for the interest 
of the parties in the contract ; in this case, of one party only, the 
borrower. As a matter of poHcy the notion may possibly be, that 
it is for the general good that interest should be low. It is, however, 
a misapprehension of the causes which influence commercial trans- 
actions, to suppose that the rate of interest is really made lower by 
law than it would be made by the spontaneous play of supply and 
demand. If the competition of borrowers, left unrestrained, would 
raise the rate of interest to six per cent, this proves that at five there 
would be a greater demand for loans than there is capital in the 
market to supply. If the law in these circumstances permits no 
interest beyond five per cent, there will be some lenders, who not 
choosing to disobey the law, and not being in a condition to employ 
their capital otherwise, will content themselves with the legal rate : 
but others, finding that in a season of pressing demand more may be 
made of their capital by other means than they are permitted to 
make by lending it, will not lend it at all ; and the loanable capital, 
already too small for the demand, will be still further diminished. 
Of the disappointed candidates there will be many at such periods 
who must have their necessities supplied at any price, and these "will 
readily find a third section of lenders, who will not be averse to join 
in a violation of the law, either by circuitous transactions partaking 
of the nature of fraud or by relying on the honour of the borrower. 
The extra expense of the roundabout mode of proceeding, and an 
equivalent for the risk of non-payment and of legal penalties, must 
be paid by the borrower, over and above the extra interest* which 
would have been required of him by the general state of the market. 
The laws which were intended to lower the price paid by him for 
pecuniary accommodation end thus in greatly increasing it. These 
laws have also a directly demorahzing tendency. Knowing the 
difficulty of detecting an illegal pecuniary transaction between two 
persons, in which no third person is involved, so long as it is the 
interest of both to keep the secret, legislators have adopted the 
expedient of tempting the borrower to become the informer, by 
making the annulment of the debt a part of the penalty for the 
offence ; thus rewarding men for first obtaining the property of 
others by false promises, and then not only refusing payment, but 



a28 BOOK V. CHAPTER X. § 2 

invoking legal penalties on those who have helped them in theii 
need. The moral sense of mankind very rightly infamizes those 
who resist an otherwise just claim on the ground of usury, and 
tolerates such a plea only when resorted to as the best legal defence 
available against an attempt really considered as partaking of fraud 
or extortion. But this very severity of pubHc opinion renders the 
enforcement of the laws so difficult, and the infliction of the penalties 
so rare, that when it does occur it merely victimizes an individual, 
and has no effect on general practice. 

In so far as the motive of the restriction may be supposed to be, 
not pubKc pohcy, but regard for the interest of the borrower, it 
would be difficult to point out any case in which such tenderness 
on the legislator's part is more misplaced. A person of sane mind, 
and of the age at which persons are legally competent to conduct 
their own concerns, must be presumed to be a sufficient guardian of 
his pecuniary interests. If he may sell an estate, or grant a release, 
or assign away all his property, without control from the law, it 
seems very imnecessary that the only bargain which he cannot 
make without its intermeddling, should be a loan of money. The 
law seems to presume that the money-lender, dealing with necessitouy 
persons, can take advantage of their necessities, and exact condi 
tions limited only by his own pleasure. It might be so if there were 
only one money-lender within reach. But when there is the whole 
monied capital of a wealthy community to resort to, no borrower is 
placed under any disadvantage in the market merely by the urgency 
of his need. If he cannot borrow at the interest paid by other 
people, it must be because he cannot give such good security : and 
competition will limit the extra demand to a fair equivalent for the 
risk of his proving insolvent. Though the law intends favour to 
the borrower, it is to him above all that injustice is, in this t;ase, 
done by it. What can be more unjust than that a person who cannot 
give perfectly good security should be prevented from borrowing of 
persons who are willing to lend money to him, by their not being 
permitted to receive the rate of interest which would be a just 
equivalent for their risk ? Through the mistaken kindness of the 
law, he must either go without the money which is perhaps necessary 
to save him from much greater losses, or be driven to expedients of 
a far more ruinous description, which the law either has not found 
it possible, or has not happened, to interdict. 

Adam Smith rather hastily expressed the opinion, that only 
two kinds of persons, " prodigals and projectors," could require 



USURY LAWS 929 

to borrow money at more tlian the market rate of interest. He 
should have included all persons who are in any pecuniary difficulties, 
however temporary their necessities may be. It may happen to any 
person in business, to be disappointed of the resources on which he 
had calculated for meeting some engagement, the non-fulfilment of 
which on a fixed day would be bankruptcy. In periods of com- 
mercial difficulty, this is the condition of many prosperous mercantile 
firms, who become competitors for the small amount of disposable 
capital which, in a time of general distrust, the owners are willing to 
part with. Under the EngHsh usury laws, now happily abolished, 
the limitations imposed by those laws were felt as a most serious 
aggravation of every commercial crisis. Merchants who could 
have obtained the aid they required at an interest of seven or eight 
per cent for short periods, were obHged to give 20 or 30 per cent 
or to resort to forced sales of goods at a still greater loss. Experience 
having obtruded these evils on the notice of Parliament, the sort 
of compromise took place of which EngUsh legislation affords so 
many instances, and which helps to make our laws and policy the mass 
of inconsistency that they are. The law was reformed as a person 
reforms a tight shoe, who cuts a hole in it where it pinches hardest, 
and continues to wear it. Eetaining the erroneous principle as a 
general rule. Parliament allowed an exception in the case in which the 
practical mischief was most flagrant. It left the usury laws unre- 
pealed, but exempted bills of exchange, of not more than three 
months' date, from their operation. Some years afterwards the 
laws were repealed in regard to all other contracts, but left in force 
as to all those which relate to land. Not a particle of reason could 
be given for making this extraordinary distinction : but the 
" agricultural mind " was of opinion that the interest on mortgages, 
though it hardly ever came up to the permitted point, would come 
up to a still higher point ; and the usury laws were maintained that 
the landlords might, as they thought, be enabled to borrow below 
the market rate, as the corn-laws were kept up that the same class 
might be able to sell corn above the market rate. The modesty of the 
pretension was quite worthy of the intelligence which could think 
that the end aimed at was in any way forwarded by the means used» 
With regard to the " prodigals and projectors " spoken of by 
Adam Smith ; no law can prevent a prodigal from ruining himself, 
unless it lays him or his property under actual restraint, according 
to the unjustifiable practice of the Koman Law and some of the 
Continental systems founded on it. The only efiect of usury laws 

2 H 



930 BOOK V. CHAPTER X. § 3 

upon a prodigal is to make his ruin rather more expeditious, by 
driving him to a disreputable class of money-dealers, and rendering 
the conditions more onerous by the extra risk created by the law. 
As for projectors (a term, in its unfavourable sense, rather unfairly 
apphed to every person who has a project), such laws may put 
a veto upon the prosecution of the most promising enterprise, when 
planned, as it generally is, by a person who does not possess capital 
adequate to its successful completion. Many of the greatest 
improvements were at first looked shyly on by capitalists, and had to 
wait long before they found one sufficiently adventurous to be the 
first in a new path : many years elapsed before Stephenson could 
convince even the enterprising mercantile public of Liverpool and 
Manchester of the advantage of substituting railways for turnpike 
roads ; and plans on which great labour and large sums have been 
expended with little visible result, (the epoch in their progress when 
predictions of failure are most rife,) may be indefinitely suspended, 
or altogether dropped, and the outlay all lost, if, when the original 
funds are exhausted, the law will not allow more to be raised on 
the terms on which people are willing to expose it to the chances 
of an enterprise not yet secure of success. ^ 

§ 3. Loans are not the only kind of contract of which govern- 
ments have thought themselves qualified to regulate the conditions 
better than the persons interested. There is scarcely any commodity 
which they have not, at some place or time, endeavoured to make 
either dearer or cheaper than it would be if left to itself. The 
most plausible case for artificially cheapening a commodity is that 
of food. The desirableness of the object is in this case undeniable. 
But since the average price of food, Hke that of other things, conforms 
to the cost of production, with the addition of the usual profit ; 
if this price is not expected by the farmer, he will, unless compelled 
by law, produce no more than he requires for his own consumption : 
and the law, therefore, if absolutely determined to have food 
cheaper, must substitute, for the ordinary motives to cultivation, 
a system of penalties. If it shrinks from doing this, it has no 
resource but that of taxing the whole nation, to give a bounty or 
premium to the grower or importer of corn, thus giving everybody 
cheap bread at the expense of all : in reaUty a largess to those 
who do not pay taxes, at the expense of those who do ; one of the 

' [See Appendix JJ. Usury Laws.l 



forms of a practice essentially bad, that of converting tlie working 
classes into unworking classes by making them a present of sub- 
sistence. 

It is not, however, so much the general or average price of food, 
as its occasional high price in times of emergency, which governments 
have studied to reduce. In some cases, as for example the famous 
" maximum " of the revolutionary government of 1793, the com- 
pulsory regulation was an attempt by the ruling powers to counteract 
the necessary consequences of their own acts ; to scatter an indefinite 
abundance of the circulating medium with one hand, and keep 
down prices with the other ; a thing manifestly impossible under 
any regime except one of unmitigated terror. In case of actual 
scarcity, governments are often urged, as they were in the Irish 
emergency of 1847, to take measures of some sort for moderating 
the price of food. But the price of a thing cannot be raised by 
deficiency of supply beyond what is sufficient to make a corres- 
ponding reduction of the consumption ; and if a government 
prevents this reduction from being brought about by a rise of price, 
there remains no mode of efiecting it unless by taking possession 
of all the food, and serving it out in rations ; as in a besieged town. 
In a real scarcity, nothing can afiord general rehef, except a deter- 
mination by the richer classes to diminish their own consumption. 
If they buy and consume their usual quantity of food, and content 
themselves with giving money, they do no good. The price is 
forced up until the poorest competitors have no longer the means 
of competing, and the privation of food is thrown exclusively upon 
the indigent, the other classes being only affected pecuniarily. 
When the supply is insufficient, somebody must consume less, 
and if every rich person is determined not to be that somebody, 
all they do by subsidizing their poorer competitors is to force up 
the price so much the higher, with no efiect but to enrich the corn- 
dealers, the very reverse of what is desired by those who recommend 
such measures. All that governments can do in these emergencies 
is to counsel a general moderation in consumption, and to interdict 
such kinds of it as are not of primary importance. Direct measures 
at the cost of the state, to procure food from a distance, are expedient 
when from peculiar reasons the thing is not Hkely to be done by 
private speculation. In any other case they are a great error. 
Private speculators will not, in such cases, venture to compete with 
the government ; and though a government can do more than any 
one merchant, it cannot do nearly so much as all merchants. 



xtK/KJXX. v« v^j_L.n.x xiiixv jnL. jj ■* 



§ 4. Governments, however, are oftener chargeable with having 
attempted, too successfully, to make things dear, than with having 
aimed by wrong means at making them cheap. The usual instru- 
ment for producing artificial dearness is monopoly. To confer a 
monopoly upon a producer or dealer, or upon a set of producers 
or dealers not too numerous to combine, is to give them the power 
of levying any amount of taxation on the pubUc, for their individual 
benefit, which will not make the public forego the use of the com- 
modity. When the sharers in the monopoly are so numerous and 
so widely scattered that they are prevented from combining, the 
evil is considerably less : but even then the competition is not 
so active among a limited as among an unhmited number. Those 
who feel assured of a fair average proportion in the general business 
are seldom eager to get a larger share by foregoing a portion of their 
profits. A limitation of competition, however partial, may have 
mischievous effects quite disproportioned to the apparent cause. 
The mere exclusion of foreigners, from a branch of industry open to 
the free competition of every native, has been known, even in 
England, to render that branch a conspicuous exception to the 
general industrial energy of the country. The silk manufacture of 
England remained far behind that of other countries of Europe, 
so long as the foreign fabrics were prohibited. In addition to the 
tax levied for the profit, real or imaginary, of the monopolists, the 
consumer thus pays an additional tax for their laziness and incapacity. 
When reheved from the immediate stimulus of competition, producers 
and dealers grow indifferent to the dictates of their ultimate 
pecuniary interest ; preferring to the most hopeful prospects the 
present case of adhering to routine. A person who is already 
thriving, seldom puts himself out of his way to commence even a 
lucrative improvement, unless urged by the additional motive 
of fear lest some rival should supplant him by getting possession of it 
before him. 

The condemnation of monopohes ought not to extend to patents, 
by which the originator of an improved process is allowed to enjoy, 
for a limited period, the exclusive privilege of using his own improve- 
ment. This is not making the commodity dear for his benefit, but 
merely postponing a part of the increased cheapness which the 
public owe to the inventor in order to compensate and reward him 
for the service. That he ought to be both compensated and rewarded 
for it, will not be denied, and also that if all were at once allowed 
to avail themselves of his ingenuity, without having shared the 



MONOPOLIES 933 

labours or tlie expenses wHch lie liad to incur in bringing bis idea 
into a practical shape, either such expenses and labours "v^ould be 
undergone by nobody except very opulent and very pubUc-spirited 
persons, or the state must put a value on the service rendered by an 
inventor, and make him a pecuniary grant. This has been done in 
some instances, and may be done without inconvenience in cases 
of very conspicuous public benefit ; but in general an exclusive 
privilege, of temporary duration, is preferable ; because it leaves 
nothing to any one's discretion ; because the reward conferred by 
it depends upon the invention's being found useful, and the greater 
the usefulness the greater the reward ; and because it is paid by the 
very persons to whom the service is rendered, the consumers of the. 
commodity. So decisive, indeed, are these considerations, that if 
the system of patents were abandoned for that of rewards by the 
state, the best shape which these could assume would be that of a 
small temporary tax, imposed for the inventor's benefit, on all 
persons making use of the invention. ^ To this, however, or to any 
other system which would vest in the state the power of deciding 
whether an inventor should derive any pecuniary advantage from 
the pubHc benefit which he confers, the objections are evidently 
stronger and more fundamental than the strongest which can 
possibly be urged against patents. It is generally admitted that 
the present Patent Laws need much improvement ; but in this 
case, as well as in the closely analogous one of Copyright, it would 
be a gross immorahty in the law to set everybody free to use a 
person's work without his consent, and without giving him an 
equivalent. I have seen with real alarm several recent attempts, 
in quarters carrying some authority, to impugn the principle of 
patents altogether ; attempts which, if practically successful, would 
enthrone free steaHng under the prostituted name of free trade, 
and make the men of brains, still more than at present, the needy 
retainers and dependents of the men of money-bags. 

§ 5. I pass to another kind of government interference, in which 
the end and the means are ahke odious, but which existed in England 
until not more than a generation ago, and in France up to the year 
1864.2 I mean the laws against combinations of workmen to raise 
wages ; laws enacted and maintained for the declared purpose of 

1 [The remainder of this paragraph was added in the 5th ed. (1862).] 

2 [So since 7th ed. (1871). Originally (1848) " not much more than twenty 
years ago, and is in full vigour at this day in some other countries."] 



934 BOOK V. CHAPTER X. § 5 

keeping wages low, as the famous -Statute of Labourers was passed 
by a legislature of employers, to prevent the labouring class, when 
its numbers had been thinned by a pestilence, from taking advantage 
of the diminished competition to obtain higher wages. Such laws 
exhibit the infernal spirit of the slave master, when to retain the 
working classes in avowed slavery has ceased to be practicable. 

If it were possible for the working classes, by combining among 
themselves, to raise or keep up the general rate of wages, it needs 
hardly be said that this would be a thing not to be punished, but to 
be welcomed and rejoiced at. Unfortunately the effect is quite 
beyond attainment by such means. The multitudes who compose 
the working class are too numerous and too widely scattered to 
combine at all, much more to combine effectually. If they could 
do so, they might doubtless succeed in diminishing the hours of 
labour, and obtaining the same wages for less work. They would 
also have a limited power of obtaining, by combination, an increase 
of general wages at the expense of profits. But the limits of this 
power are narrow ; and were they to attempt to strain it beyond 
those limits, this could only be accomplished by keeping a part of 
their number permanently out of employment.^ As support from 
public charity would of course be refused to those who could get 
work and would not accept it, they would be thrown for support 
upon the trade union of which they were members ; and the work- 
people collectively would be no better off than before, having to 
support the same numbers out of the same aggregate wages. In 
this way, however, the class would have its attention forcibly 
drawn to the fact of a superfluity of numbers, and to the necessity, 
if they would have high wages, of proportioning the supply of 
labour to the demand. 

Combinations to keep up wages are sometimes successful, in 
trades where the workpeople are few in number, and collected in a 
small number of local centres. It is questionable if combinations 
ever had the smallest effect on the permanent remuneration of 
spinners or weavers ; but the journeymen type-founders, by a 
close combination, are able, it is said, to keep up a rate of wages 
much beyond that which is usual in employments of equal hardness 

^ [This and the preceding sentence replaced, but not until the 7th ed. 
(1871), the following sentence of the original (1848) text : " But if they aimed 
at obtaining actually higher wages than the rate fixed by demand and supply 
— the rate which distributes the whole circulating capital of the country among 
the entire working population — this could only be accomplished by keeping 
a part of their number permanently out of employment."] 



COMBINATION LAWS 935 

and skill ; and even the tailors, a much more numerous class, are 
understood to have had, to some extent, a similar success. A rise 
of wages, thus confined to particular employments, is not (Uke a 
rise of general wages) defrayed from profits, but raises the value and 
price of the particular article, and falls on the consumer ; the 
capitalist who produces the commodity being only injured in so 
far as the high price tends to narrow the market ; and not even 
then, unless it does so in a greater ratio than that of the rise of 
price : for though, at higher wages, he employs, with a given capital, 
fewer workpeople, and obtains less of the commodity, yet if he can 
sell the whole of this diminished quantity at the higher price, his 
profits are as great as before. 

This partial rise of wages, if not gained at the expense of the 
remainder of the working class, ought not to be regarded as an 
evil.i The consumer, indeed, must pay for it ; but cheapness of 
goods is desirable only when the cause of it is that their production 
costs httle labour, and not when occasioned by that labour's being 
ill remunerated. It may appear, indeed, at first sight, that the 
high wages of the type-founders (for example) are obtained at the 
general cost of the labouring class. This high remuneration either 
causes fewer persons to find employment in the trade, or if not, 
must lead to the investment of more capital in it, at the expense 
of other trades : in the first case, it throws an additional number of 
labourers on the general market ; in the second, it withdraws from that 
market a portion of the demand : efiects, both of which are injurious 
to the working classes. Such, indeed, would really be the result of a 
successful combination in a particular trade or trades, for some 
time after its formation ; but when it is a permanent thing, the 
principles so often insisted upon in this treatise, show that it can 
have no such effect. The habitual earnings of the working classes 
at large can be effected by nothing but the habitual requirements of 
the labouring people : these indeed may be altered, but while they 
remain the same, wages never fall permanently below the standard 
of these requirements, and do not long remain above that standard. 
If there had been no combinations in particular trades, and the 
wages of those trades had never been kept above the common level, 
there is no reason to suppose that the common level would have been 
at all higher than it now is. There would merely have been a greater 
number of people altogether, and a smaller number of exceptions to 
the ordinary low rate of wages. 
1 [So since 3rd ed. (1852). Originally : " ought to be regarded as a benefit."] 



936 BOOK V. CHAPTER X. § 5 

ilf, therefore, no improvement were to be hoped for in the 
general circumstances of the working classes, the success of a portion 
of them, however small, in keeping their wages by combination 
above the market rate, would be wholly a matter of satisfaction. 
But when the elevation of the character and condition of the entire 
body has at last become a thing not beyond the reach of rational 
effort, it is time that the better paid classes of skilled artisans should 
seek their own advantage in common with, and not by the exclusion 
of, their fellow-labourers. While they continue to fix their hopes on 
hedging themselves in against competition, and protecting their own 
wages by shutting out others from access to their employment, 
nothing better can be expected from them than that total absence 
of any large and generous aims, that almost open disregard of all 
other objects than high wages and Httle work for their own small 
body, which were so deplorably evident in the proceedings and 
manifestoes of the Amalgamated Society of Engineers during their 
quarrel with their employers. Success, even if attainable, in raising 
up a protected class of working people, would now be a hindrance, 
instead of a help, to the emancipation of the working classes at large. 

But though combinations to keep up wages are seldom effectual, 
and when effectual, are, for the reasons which I have assigned, 
seldom desirable, the right of making the attempt is one which 
cannot be refused to any portion of the working population without 
great injustice, or without the probability of fatally misleading 
them respecting the circumstances which determine their condition. 
So long as combinations to raise wages were prohibited by law, 
the law appeared to the operatives to be the real cause of the low 
wages which there was no denying that it had done its best to 
produce. Experience of strikes has been the best teacher of the 
labouring classes on the subject of the relation between wages and 
the demand and supply of labour : and it is most important that 
this course of instruction should not be disturbed. 

2 It is a great error to condemn, fer se and absolutely, either trade 
unions or the collective action of strikes. Even assuming that a 

* [This and the following paragraph were added in the 3rd ed. (1852) ; and 
the sentence of the original text, " Combinations to keep up wages are there- 
fore not only permissible but useful, wherever really calculated to have that 
effect," was removed at this point.] 

2 [This paragraph was added in the 5th ed. (1862). The second sentence, 
however, then ran : "I grant that a strike is wrong whenever it is foolish, 
and it is foolish whenever it attempts to raise wages above that market rate 
which is rendered possible by supply and demand. But demand and supply 
are not physical agencies," &c. The present text dates from the 7th ed. (1871).] 



COMBINATION LAWS 937 

Btrike must inevitably fail whenever it attempts to raise wages above 
that market rate which is fixed by the demand and supply ; demand 
and supply are not physical agencies, which thrust a given amount 
of wages into a labourer's hand without the participation of his own 
will and actions. The market rate is not fixed for him by some 
self-acting instrument, but is the result of bargaining between human 
beings — of what Adam Smith calls " the higghng of the market ; " 
and those who do not " higgle " will long continue to pay, even over 
a counter, more than the market price for their purchases. Still 
more might poor labourers who have to do with rich employers 
remain long without the amount of wages which the demand for 
their labour would justify, unless, in vernacular phrase, they stood 
out for it : and how can they stand out for terms without organized 
concert ? What chance would any labourer have who struck singly 
for an advance of wages ? How could he even know whether the 
state of the market admitted of a rise, except by consultation with 
his fellows, naturally leading to concerted action ? I do not hesitate 
to say that associations of labourers, of a nature similar to trade 
unions, far from being a hindrance to a free market for labour, are 
the necessary instrumentahty of that free market ; the indispensable 
means of enabhng the sellers of labour to take due care of their 
,own interests under a system of competition. There is an ulterior 
consideration of much importance, to which attention was for the 
first time drawn by Professor Fawcett, in an article in the Westminster 
Review. Experience has at length enabled the more inteUigent trades 
to take a tolerably correct measure of the circumstances on which 
the success of a strike for an advance of wages depends. The 
workmen are now nearly as well informed as the master of the state 
of the market for his commodities ; they can calculate his gains and 
his expenses, they know when his trade is or is not prosperous, 
and only when it is, are they ever again likely to strike for higher 
wages ; which wages their known readiness to strike makes their 
employers for the most part willing, in that case, to concede. The 
tendency, therefore, of this state of things is to make a rise of wages 
in any particular trade usually consequent upon a rise of profits, 
which, as Mr. Fawcett observes, is a commencement of that regular 
participation of the labourers in the profits derived from their labour, 
every tendency to which, for the reasons stated in a previous chapter,* 
it is so important to encourage, since to it we have chiefly to look 
for any radical improvement in the social and economical relations 

* Supra, book v. chap. vii. 



§3§ Book v. chapter x. § s 

between labour and capital. Strikes, therefore, and tlie trade 
societies which, render strikes possible, are for these various reasons 
not a mischievous, but on the contrary, a valuable part of the 
existing machinery of society. 

It is, however, an indispensable condition of tolerating combina- 
tions, that they should be voluntary. No severity, necessary to the 
purpose, is too great to be employed against attempts to compel 
workmen to join a union, or take part in a strike by threats or 
violence. Mere moral compulsion, by the expression of opinion, 
the law ought not to interfere with ; it belongs to more enhghtened 
opinion to restrain it, by rectifying the moral sentiments of the 
people. Other questions arise when the combination, being volun- 
tary, proposes to itself objects really contrary to the public good. 
High wages and short hours are generally good objects, or, at all 
events, may be so : ^ but in many trade unions, it is among the 
rules that there shall be no task work, or no difference of pay 
between the most expert workmen and the most unskilful, or that 
no member of the union shall earn more than a certain sum per 
week, in order that there may be more employment for the rest ; 
2 and the aboHtion of piece work, under more or less of modification, 
held a conspicuous place among the demands of the Amalgamated 
Society. These are combinations to effect objects which are per- 
nicious. Their success, even when only partial, is a public mischief; 
and were it complete, would be equal in magnitude to almost any of 
the evils arising from bad economical legislation. Hardly anything 
worse can be said of the worst laws on the subject of industry and 
its remuneration, consistent with the personal freedom of the labourer, 
than that they place the energetic and the idle, the skilful and the 
incompetent, on a level : and this, in so far as it is in itself possible, 
it is the direct tendency ^ of the regulations of these unions to do. 
* It does not, however, follow as a consequence that the law would 

* [At tliis point the following passage of the original text was omitted 
from the 3rd ed. (1852) : " and a limitation of the number of persons in employ- 
ment may be a necessary condition of these. Combinations, therefore, not to 
work for less than certain wages, or for more than a certain number of hours, 
or even not to work for a master who employs more than a certain number 
of apprentices, are, when voluntary on the part of all who engage in them, not 
only unexceptionable, but would be desirable, were it not that they almost 
always fail of their effect."] 

2 [This sentence was inserted in the 3rd ed.] 

' [So since the 5th ed. (1862). In the earlier editions: " avowed object."] 

* [The rest of this paragraph dates from the 3rd ed. The first edition 
(1848) read : " Every society which exacts from its members obedience to rules 
of this description and endeavours to enforce compliance with them on 



COMBINATION LAWS 939 

be warranted in making the formation of such associations illegal 
and punishable. Independently of all considerations of consti- 
tutional liberty, the best interests of the human race imperatively 
require that all economical experiments, voluntarily undertaken, 
should have the fullest Ucence, and that force and fraud should be 
the only means of attempting to benefit themselves which are 
interdicted to the less fortunate classes of the community.* 

§ 6. Among the modes of undue exercise of the power of govern- 
ment on which I have commented in this chapter, I have included 
only such as rest on theories which have still more or less of footing 
in the most enlightened countries. I have not spoken of some which 
have done still greater mischief in times not long past, but which 
are now generally given up, at least in theory, though enough of 
them still remains in practice to make it impossible as yet to class 
them among exploded errors. 

The notioUj for example, that a government should choose 

the part of employers by refusal to work, is a public nuisance. Whether 
the law would be warranted in. making the formation of such associations Olegal 
and punishable, depends upon the difficult question of the legitimate bounds 
of constitutional liberty. What are the proper limits to the right of asso- 
ciation ? To associate for the purpose of violating the law could not of 
course be tolerated under any government. But among the numerous acts 
which, although mischievous in themselves, the law ought not to prohibit 
from being done by individuals, are there not some which are rendered so 
much more mischievous when people combine to do them, that the legislature 
ought to prohibit the combination, though not the act itself ? When these 
questions have been philosophically answered, which belongs to a different 
branch of social philosophy from the present, it may be determined whether the 
kind of associations here treated of can be a proper subject of any other than 
merely moral repression." 

But in the 2nd ed. (1849) this had already been replaced by : " Any society 
which exacts from its members obedience to rules of this description, and 
endeavours to enforce compliance with them on the part of employers by 
refusal to work, incurs the inconveniences of Communism, without getting 
rid of any of those of individual property. It does not follow, however, that 
the law would be warranted " &c., as at present.] 

* [1862] Whoever desires to understand the question of Trade Combinations 
as seen from the point of view of the working people, should make himself 
acquainted with a pamphlet published in 1860, under the title Trades Unions 
and Strikes, their Philosophy and Intention, by T. J. Dunning, Secretary to 
the London Consolidated Society of Bookbinders. There are many opinions 
in this able tract in which I only partially, and some in which I do not at all, 
coincide. , But there are also many sound arguments, and an instructive expo- 
sure of the common fallacies of opponents. Readers of other classes will see 
with surprise, not only how great a portion of truth the Unions have on their 
side, but how much less flagrant and condemnable even their errors appear, 
when seen under the aspect in which it is only natural that the working classes 
■hould themselves regard them. 



QiO BOOK V. CHAPTER X. § 6 

opinions for tlie people, and should not suffer any doctrines in 
politics, morals, law, or religion, but such as it approves, to be 
printed or pubHcly professed, may be said to be altogether abandoned 
as a general thesis. It is now well understood that a regime of this 
sort is fatal to all prosperity, even of an economical kind : that the 
human mind when prevented either by fear of the law or by fear of 
opinion from exercising its faculties freely on the most important 
subjects, acquires a general torpidity and imbecihty, by which, when 
they reach a certain point, it is disqualified from making any 
considerable advances even in the common affairs of life, and which, 
when greater still, make it gradually lose even its previous attain- 
ments. There cannot be a more decisive example than Spain and 
Portugal, for two centuries after the Eeformation. The decHne of 
those countries in national greatness, and even in material civiKzation, 
while almost all the other nations of Europe were uninterruptedly 
advancing, has been ascribed to various causes, but there is one 
which hes at the foundation of them all : the Holy Inquisition, and 
the system of mental slavery of which it is the symbol. 

Yet although these truths are very widely recognized, and 
freedom both of opinion and of discussion is admitted as an axiom 
in all free countries, this apparent Hberality and tolerance has 
acquired so little of the authority of a principle, that it is always 
ready to give way to the dread or horror inspired by some particular 
sort of opinions. Within the last fifteen or twenty years,i several 
individuals have suffered imprisonment, for the public profession, 
sometimes in a very temperate manner, of disbelief in religion ; and 
it is probable that both the public and the government, at the first 
panic which arises on the subject of Chartism or Communism, will 
fly to similar means for checking the propagation of democratic or 
anti-property doctrines. In this country, however, the effective 
restraints on mental freedom proceed much less from the law or the 
government, than from the intolerant temper of the national mind ; 
arising no longer from even as respectable a source as bigotry or 
fanaticism, but rather from the general habit, both in opinion and 
conduct, of making adherence to custom the rule of Hfe, and 
enforcing it, by social penalties, against all persons who, without a 
party to back them, assert their individual independence. 

> [So in Ith ed. (1871). In 1st (1848) : " two or tliree."J 



CHAPTER XI 

OP THE GROUNDS AND LIMITS OP THE LAISSER-FAIRB 
OR NON-INTERFERENCE PRINCIPLE 

§ 1. We have now reached the last part of our undertaking ; 
the discussion, so far as suited to this treatise (that is, so far as it is a 
question of principle, not detail), of the limits of the province of 
government : the question, to what objects governmental inter- 
vention in the affairs of society may or should extend, over and 
above those which necessarily appertain to it. No subject has 
been more keenly contested in the present age : the contest, however, 
has chiefly taken place round certain select points, with only flying 
excursions into the rest of the field. Those indeed who have discussed 
any particular question of government interference, such as state 
education (spiritual or secular), regulation of hours of labour, a 
pubKc provision for the poor, &c., have often dealt largely in general 
arguments, far outstretching the special appHcation made of them, 
and have shown a sufficiently strong bias either in favour of letting 
things alone, or in favour of meddling ; but have seldom declared, 
or apparently decided in their own minds, how far they would 
carry either principle. The supporters of interference have been 
content with asserting a general right and duty on the part of 
government to intervene, wherever its intervention would be useful : 
and when those who have been called the laisser-faire school have 
attempted any definite limitation of the province of government, 
they have usually restricted it to the protection of person and property 
against force and fraud ; a definition to which neither they nor 
any one else can dehberately adhere, since it excludes, as has been 
shown in a preceding chapter,* some of the most indispensable and 
unanimously recognized of the duties of government. 

Without professing entirely to supply this deficiency of a general 
theory, on a question which does not, as I conceive, admit of any 

■^ Supra, book y, ch. 1. 



942 BOOK V. CHAPTER XI. § 2 

universal solution, I shall attempt to afford some little aid towards 
the resolution of this class of questions as they arise, by examining, 
in the most general point of view in which the subject can be 
considered, what are the advantages, and what the evils or incon- 
veniences, of government interference. 

We must set out by distinguishing between two kinds of inter- 
vention by the government, which, though they may relate to the 
same subject, differ widely in their nature and effects, and require, 
for their justification, motives of a very different degree of urgency. 
The intervention may extend to controlling the free agency of indi- 
viduals. Government may interdict all persons from doing certain 
things ; or from doing them without its authorization ; or may 
prescribe to them certain things to be done, or a. certain manner of 
doing things which it is left optional with them to do or to abstain 
from. This is the authoritative interference of government. There 
is another kind of intervention which is not authoritative : when 
a government, instead of issuing a command and enforcing it by 
penalties, adopts the course so seldom resorted to by governments, 
and of which such important use might be made, that of giving 
advice, and promulgating information ; or when, leaving individuals 
free to use their own means of pursuing any object of general interest, 
the government, not meddling with them, but not trusting the object 
solely to their care, estabUshes, side by side with their arrangements, 
an agency of its own for a hke purpose. Thus, it is one thing to 
maintain a Church Establishment, and another to refuse toleration 
to other religions, or to persons professing no reHgion. It is one thing 
to provide schools or colleges, and another to require that no person 
shall act as an instructor of youth without a government licence. 
There might be a national bank, or a government manufactory, 
without any monopoly against private banks and manufactories. 
There might be a post-oflS.ce, without penalties against the con- 
veyance of letters by other means. There may be a corps of govern- 
ment engineers for civil purposes, while the profession of a civil 
engineer is free to be adopted by every one. There may be public 
hospitals, without any restriction upon private medical or surgical 
practice. 

§ 2. It is evident, even at first sight, that the authoritative 
torm of government intervention has a much more limited sphere 
of legitimate action than the other. It requires a much strongeT 
necessity to justify it in any case ; while there are large departmeiits 



I LIMITS OF THE PROVmCE OF GOVERNMENT 943 

of human life from which it must be unreservedly and imperiously 
excluded. Whatever theory we adopt respecting the foundation of 
the social union, and under whatever political institutions we Hve, 
there is a circle around every individual human being which no 
government, be it that of one, of a few, or of the many, ought to 
be permitted to overstep : there is a part of the Hfe of every person 
who has come to years of discretion, within which the individuaHty 
of that person ought to reign uncontrolled either by any other 
individual or by the pubHc collectively. That there is, or ought to 
be, some space in human existence thus entrenched around, and 
sacred from authoritative intrusion, no one who professes the smallest 
regard to human freedom or dignity will call in question : the point 
to be deter mi Tied is, where the Hmit should be placed ; how large a 
province of human hfe this reserved territory should include. I 
apprehend that it ought to include all that part which concerns 
only the hfe, whether inward or outward, of the individual, and 
does not affect the interests of others, or affects them only through 
the moral influence of example. With respect to the domain of the 
inward consciousness, the thoughts and feelings, and as much of 
external conduct as is personal only, involving no consequences, 
none at least of a painful or injurious kind, to other people ; I hold 
that it is allowable in all, and in the more thoughtful and cultivated 
often a duty, to assert and promulgate, with all the force they are 
capable of, their opinion of what is good or bad, admirable or con 
temptible, but not to compel others to conform to that opinion; 
whether the force used is that of extra-legal coercion, or exerts itself 
by means of the law. 

Even in those portions of conduct which do affect the interest of 
others, the onus of making out a case always Ues on the defenders 
oi legal prohibitions. It is not a merely constructive or presumptive 
injury to others which will justify the interference of law with indi- 
vidual freedom. To be prevented from doing what one is incHned 
to, or from acting according to one's own judgment of what is 
desirable, is not only always irksome, but always tends, fro tanto, 
to starve the development of some portion of the bodily or mental 
faculties, either sensitive or active ; and unless the conscience of the 
individual goes freely with the legal restraint, it partakes, either in a' 
great or in a small degree, of the degradation of slavery. Scarcely 
any degree of utility, short of absolute necessity, will justify a 
prohibitory regulation, unless it can also be made to recommend 
itself to the general conscience; unless persons of ordinary good 



944 BOOK V. CHAPTER XL § 3 

intentions either believe already, or can be induced to believe, tbat 
tbe thing prohibited is a thing which they ought not to wish to do. 
It is otherwise with governmental interferences which do not 
restrain individual free agency. When a government provides 
means for fulfilHng a certain end, leaving individuals free to avail 
themselves of different means if in their opinion preferable, there 
is no infringement of liberty, no irksome or degrading restraint. 
One of the principal objections to government interference is then 
absent. There is, however, in almost all forms of government 
agency, one thing which is compulsory ; the provision of the 
pecuniary means. These are derived from taxation ; or, if existing 
in the form of an endowment derived from pubhc property, they 
are still the cause of as much compulsory taxation as the sale or 
the annual proceeds of the property would enable to be dispensed 
with.* And the objection necessarily attaching to compulsory 
contributions, is almost always greatly aggravated by the expensive 
precautions and onerous restrictions which are indispensable to 
prevent evasion of a compulsory tax. 

§ 3. A second general objection to goveisiment agency is that 
every increase of the functions devolving on the government is an 
increase of its power, both in the form of authority, and still more, 
in the indirect form of influence. The importance of this considera- 
tion, in respect to political freedom, has in general been quite suffi- 
ciently recognized, at least in England ; but many, in latter times, 
have been prone to think that limitation of the powers of the 
government is only essential when the government itself is badly con- 
stituted ; when it does not represent the people, but is the organ of a 
class, or coalition of classes : and that a government of sufficiently 
popular constitution might be trusted with any amount of power 
over the nation, since its power would be only that of the nation over 
itself. This might be true, if the nation, in such cases, did not 
practically mean a mere majority of the nation, and if minorities 
were only capable of oppressing, but not of being oppressed. 
ExperiencCj howeveij proves that the depositaries of power who 

* The only cases in which government agency involves nothing of a com- 
pulsory nature, are the rare cases in which, without any artificial monopoly, it 
pays its own expenses. A bridge built with public money, on which tolls aie 
collected sufficient to pay not only all current expenses, but the interest of the 
original outlay, is one case in point. The government railways in Belgium and 
Germany are another example. The Post Office, if its monopoly were abolished, 
and it still paid its expenses, would be another. 



LimTS OF THE PROVINCE OF GOVERNMENT 946 

are mere delegates of the people, that is of a majority, are quite as 
ready (when they think they can count on popular support) as any 
organs of oHgarchy to assume arbitrary power, and encroach unduly 
on the hberty of private hfe. The pubHc collectively is abundantly 
ready to impose, not only its generally narrow views of its interests, 
but its abstract opinions, and even its tastes, as laws binding upon 
individuals. And the present civilization tends so strongly to make 
the power of persons acting in masses the only substantial power 
in society, that there never was more necessity for surrounding 
individual independence of thought, speech, and conduct, with the 
most powerful defences, in order to maintain that originahty of mind 
and individuahty of character, which are the only source of any real 
progress, and of most of the quahties which make the human race 
much superior to any herd of animals. Hence it is no less important 
in a democratic than in any other government, that all tendency 
on the part of public authorities to stretch their interference, and 
assume a power of any sort which can easily be dispensed withj 
should be regarded with unremitting jealousy. Perhaps this is 
even more important in a democracy than in any other form of 
poHtical society ; because, where pubKc opinion is sovereign, an 
individual who is oppressed by the sovereign does not, as in most 
other states of things, find a rival power to which he can appeal for 
relief, or, at all events, for sympathy. 

§ 4. A third general objection to government agency rests on 
the principle of the division of labour. Every additional function 
undertaken by the government is a fresh occupation imposed upon 
a body already overcharged with duties. A natural consequence is 
that most things are ill done ; much not done at all, because the 
government is not able to do it without delays which are fatal to 
its purpose ; that the more troublesome, and less showy, of the 
functions undertaken, are postponed or neglected, and an excuse is 
always ready for the neglect ; while the heads of the administration 
have their minds so fully taken up with official details^ in however 
perfunctory a manner superintended, that they have no time or 
thought to spare for the great interests of the state, and the prepara- 
tion of enlarged measures of social improvement. 

But these inconveniences, though real and serious, result much 
more from the bad organization of governments, than from the 
extent and variety of the duties undertaken by them. Government 
is not a name for some one functionary, or definite number of 



946 BOOK V. CHAPTER XL § 4 

functionaries : there may be almost any amount of division of labour 
within the administrative body itself. The evil in question is felt 
in great magnitude under some of the governments of the Continent, 
where six or eight men, living at the capital and known by the name 
of ministers, demand that the whole public business of the coimtry 
shall pass, or be supposed to pass, under their individual eye. But 
the inconvenience would be reduced to a very manageable compass, 
in a country in which there was a proper distribution of functions 
between the central and local officers of government, and in which 
the central body was divided into a sufficient number of departments. 
When Parliament thought it expedient to confer on the government 
an inspecting and partially controlling authority over railways, 
it did not add railways to the department of the Home Minister, but 
created a Railway Board. When it determined to have a central 
superintending authority for pauper administration, it established 
the Poor Law Commission. There are few countries in which a 
greater number of functions are discharged by public officers, than 
in some states of the American Union, particularly the New England 
States : but the division of labour in pubHc business is extreme ; 
most of these officers being not even amenable to any common 
superior, but performing their duties freely, under the double check of 
election by their townsmen, and civil as well as criminal responsi- 
bihty to the tribunals. 

It is, no doubt, indispensable to good government that the chiefs 
of the administration, whether permanent or temporary, should 
extend a commanding, though general, view over the ensemble of 
all the interests confided, in any degree, to the responsibility of the 
central power. But with a skilful internal organization of the 
administrative machine, leaving to subordinates, and as far aa 
possible, to local subordinates, not only the execution, but to a 
great degree the control, of details ; holding them accountable for 
the results of their acts rather than for the acts themselveSj except 
where these come within the cognizance of the tribunals ; taking 
the most effectual securities for honest and capable appointments ; 
opening a broad path to promotion from the inferior degrees of 
the administrative scale to the superior ; leaving, at each step, 
to the functionary, a wider range in the origination of measures, so 
that, in the highest grade of all, deliberation might be concentrated 
on the great collective interests of the country in each department ; 
if all this were done, the government would not probably be over- 
burthened by any business, in other respects fit to be undertaken by 



LIMITS OF THE PROVINCE OF GOVERNMENT 947 

It; thougli the overburthening would remain as a serious addition 
to the inconveniences incurred by its undertaking any wLich was 
unfit. 

§ 5. But though a better organization of governments would 
greatly diminish the force of the objection to the mere multiplication 
of their duties, it would still remain true that in all the more advanced 
communities the great majority of things are worse done by the 
intervention of government, than the individuals most interested 
in the matter would do them, or cause them to be done, if left to 
themselves. The grounds of this truth are expressed with tolerable 
exactness in the popular dictum, that people understand their own 
business and their own interests better, and care for them more, 
than the government does, or can be expected to do. This maxim 
holds true throughout the greatest part of the business of life, and 
wherever it is true we ought to condemn every kind of government 
intervention that conflicts with it. The inferiority of government 
agency, for example, in any of the common operations of industry or 
commerce, is proved by the fact, that it is hardly ever able to 
maintain itself in equal competition with individual agency, where 
the individuals possess the requisite degree of industrial enterprise, 
and can command the necessary assemblage of means. AU the 
facilities which a government enjoys of access to information ; all 
the means which it possesses of remunerating, and therefore of 
commanding, the best available talent in the market — are not an 
equivalent for the one great disadvantage of an inferior interest 
in the result. 

It must be remembered, besides, that even if a government were 
superior in intelligence and knowledge to any single individual in 
the nation, it must be inferior to all the individuals of the nation 
taken together. It can neither possess in itself, nor enUst in its 
service, more than a portion of the acquirements and capacities 
which the country contains, appHcable to any given purpose. 
There must be many persons equally qualified for the work with 
those whom the government employs, even if it selects its instru- 
ments with no reference to any consideration but their fitness. 
Now these are the very persons into whose hands, in the cases of 
most common occurrence, a system of individual agency naturally 
tends to throw the work, because they are capable of doing it better or^ 

1 [So since 5th ed. (1862). Originally : " and."] 



948 BOOK V. CHAPTER XI. § 6 

on clieaper terms than any other persons. So far as this is the 
case, it is evident that government, by excluding or even by super- 
seding individual agency, either substitutes a less qualified instru- 
mentahty for one better quahfied, or at any rate substitutes its 
own mode of accomplishing the work, for all the variety of modes 
which would be tried by a number of equally quahfied persons 
aiming at the same end ; a competition by many degrees more 
propitious to the progress of improvement than any uniformity of 
system. 

§ 6. I have reserved for the last place one of the strongest of 
the reasons against the extension of government agency. Even if 
the government could comprehend within itself, in each department, 
all the most eminent intellectual capacity and active talent of the 
nation, it would not be the less desirable that the conduct of a large 
portion of the affairs of the society should be left in the hands of 
the persons immediately interested in them. The business of fife is 
an essential part of the practical education of a people ; without 
which, book and school instruction, though most necessary and 
salutary, does not suffice to quahfy them for conduct, and for 
the adaptation of means to ends. Instruction is only one of the 
desiderata of mental improvement ; another, almost as indispensable, 
is a vigorous exercise of the active energies ; labour, contrivance, 
judgment, self-control : and the natural stimulus to these is the 
difficulties of Ufe. This doctrine is not to be confounded with the 
complacent optimism, which represents the evils of hfe as desirable 
things, because they call forth qualities adapted to combat with 
evils. It is only because the difficulties exist, that the quahties 
which combat with them are of any value. As practical beings it 
is our business to free human Hfe from as many as possible of its 
difficulties, and not to keep up a stock of them as hunters preserve 
game for the exercise of pursuing it. But since the need of active 
talent and practical judgment in the affairs of life can only be 
diminished, and not, even on the most favourable supposition, done 
away with, it is important that those endowments should be culti- 
vated not merely in a select few, but in all, and that the cultivation 
should be more varied and complete than most persons are able to 
find in the narrow sphere of their merely individual interests. A 
people among whom there is no habit of spontaneous action for a 
collective interest — who look habitually to their government to 
command or prompt them in all matters of joint concern — who 



LIMITS OF THE PROVINCE OF GOVERNMENT 949 

expect to have everything done for them, except what can be made 
an affair of mere habit and routine — have their faculties only half 
developed ; their education is defective in one of its most important 
branches. 

Not only is the cultivation of the active faculties by exercise, 
diffused through the whole community, in itself one of the most 
valuable of national possessions : it is rendered, not less, but more 
necessary, when a high degree of that indispensable culture is 
systematically kept up in the chiefs and functionaries of the state. 
There cannot be a combination of circumstances more dangerous 
to human welfare, than that in which intelHgence and talent are 
maintained at a high standard within a governing corporation, 
but starved and discouraged outside the pale. Such a system, 
more completely than any other, embodies the idea of despotism, 
by arming with intellectual superiority as an additional weapon 
those who have already the legal power. It approaches as nearly 
as the organic difference between human beings and other animals 
admits, to the government of sheep by their shepherd without 
anything Hke so strong an interest as the shepherd has in the thriving 
condition of the flock. Th^ only security against poHtical slavery 
is the check maintained over governors by the diffusion of intelli- 
gence, activity, and public spirit among the governed. Experience 
proves the extreme difficulty of permanently keeping up a suffi- 
ciently high standard of those qualities ; a difficulty which increases, 
as the advance of civiKzation and security removes one after another 
of the hardships, embarrassments, and dangers against which 
individuals had formerly no resource but in their own strength, 
skill, and courage. It is therefore of supreme importance that all 
classes of the community, down to the lowest, should have much to 
do for themselves ; that as great a demand should be made upon 
their intelligence and virtue as it is in any respect equal to ; that 
the government shpuld not only leave as far as possible to their 
own faculties the conduct of whatever concerns themselves alone, but 
should suffer them, or rather encourage them, to manage as many 
as possible of their joint concerns by voluntary co-operation ; since 
this discussion and management of collective interests is the great 
school of that pubhc spirit, and the great source of that inteUigence 
of pubhc affairs, which are always regarded as the distinctive 
character of the pubhc of free countries. 

A democratic constitution, not supported by democratic institu- 
tions in detailj but confined to the central government, not only 



950 BOOK V. CHAPTER XL § 7 

is not political freedom, but often creates a spirit precisely the 
reverse, carrying down to tlie lowest grade in society the desire and 
ambition of political domination. In some countries tlie desire of 
the people is for not being tyrannized over, but in others it is merely 
for an equal chance to everybody of tyrannizing. Unhappily this 
last state of the desires is fully as natural to mankind as' the former, 
and in many of the conditions even of civilized humanity is far 
more largely exempHfied. In proportion as the people are accus- 
tomed to manage their affairs by their own active intervention, 
instead of leaving them to the government, their desires will turn 
to repelHng tyranny, rather than to tyrannizing : while in proportion 
as aU real initiative and direction resides in the government, and 
individuals habitually feel and act as under its perpetual tutelage, 
popular institutions develop in them not the desire of freedom, 
but an unmeasured appetite for place and power ; diverting the 
intelHgence and activity of the country from its principal business 
to a wretched competition for the selfish prizes and the petty vanities 
of ofiice. 

§ 7. The preceding are the principal reasons, of a general 
character, in favour of restricting to the narrowest compass the 
intervention of a public authority in the business of the com- 
munity : and few will dispute the more than sufficiency of these 
reasons, to throw, in every instance, the burthen of making out 
a strong case, not on those who resist, but on those who recom- 
mend, government interference. Laisser-faire, in short, should be 
the general practice : every departure from it, unless required by 
some great good, is a certain evil. 

The degree in which the maxim, even in the cases to which it is 
most manifestly applicable, has heretofore been infringed by govern- 
ments, future ages will probably have difficulty in crediting. Some 
idea may be formed of it from the description of M. Dunoyer * of 
the restraints imposed on the operations of manufacture under the 
old government of France, by the meddling and regulating spirit 
of legislation. 

*' The State exercised over manufacturing industry the most 
unlimited and arbitrary jurisdiction. It disposed without scruple of 
the resources of manufacturers : it decided who should be allowed 
to work, what things it should be permitted to make, what materials 

* De la LibertS du Travail, vol. i. pp. 353-4. 



LBnXS OF THE PROVINCE OF GOVEENMENT 951 

should be employed, what processes followed, what forms should be 
given to productions. It was not enough to do well, to do better ; 
it was necessary to do according to the rules. Everybody knows 
the regulation of 1670 which prescribed to seize and nail to the 
pillory, with the names of the makers, goods not conformable to 
the rules, and which, on a second repetition of the offence, directed 
that the manufacturers themselves should be attached also. Not 
the taste of the consumers, but the commands of the law must be 
attended to. Legions of inspectors, commissioners, controllers, 
jurymen, guardians, were charged with its execution. Machines 
were broken, products were burned when not conformable to 
the rules : improvements were punished ; inventors were fined. 
There were different sets of rules for goods destined for home con- 
sumption and for those intended for exportation. An artizan could 
neither choose the place in which to establish himself, nor work at 
all seasons, nor work for all customers. There exists a decree of 
March 30, 1700, which limits to eighteen towns the number of places 
where stockings might be woven. A decree of June 18, 1723, 
enjoins the manufacturers at Eouen to suspend their works from 
the 1st of July to the 15th of September, in order to facilitate the 
harvest. Louis XIV., when he intended to construct the colonnade 
of the Louvre, forbade all private persons to employ workmen 
without his permission, under a penalty of 10,000 livres, and forbade 
workmen to work for private persons, on pain for the first offence, 
of imprisonment, and for the second, of the galleys." 

That these and similar regulations were not a dead letter, and 
that the officious and vexatious meddling was prolonged down to the 
French Eevolution, we have the testimony of Eoland, the Girondist 
minister.* " I have seen," says he, " eighty, ninety, a hundred 
pieces of cotton or wooUen stuff cut up, and completely destroyed. I 
have witnessed similar scenes every week for a number of years. I 
have seen manufactured goods confiscated ; heavy fines laid on the 
manufacturers ; some pieces of fabric were burnt in public places, 
and at the hours of market : others were fixed to the pillory, with 
the name of the manufacturer inscribed upon them, and he himself 
was threatened with the pillory, in case of a second offence. AU 
this was done under my eyes, at Rouen, in conformity with existing 
regulations, or ministerial orders. What crime deserved so cruel 
a punishment ? Some defects in the materials employed, or in 

* I quote at second hand, from Mr. Carey's Essay on the Rate of WageSg 
pp. 195-6. 



952 BOOK V. CHAPTER XL § 7 

tlie texture of tlie fabric, or even in some of the threads of the 
warp. 

" I have frequently seen manufacturers visited by a band of 
satellites who put all in confusion in their establishments, spread 
terror in their families, cut the stuffs from the frames, tore off the 
warp from the looms, and carried them away as proofs of infringe- 
ment ; the manufacturers were summoned, tried, and condemned : 
their goods confiscated ; copies of their judgment of confiscation 
posted up in every public place ; fortune, reputation, credit, all 
was lost and destroyed. And for what offence ? Because they had 
made of worsted a kind of cloth called shag, such as the English used 
to manufacture, and even sell in France, while the French regulations 
stated that that kind of cloth should be made with mohair. I have 
seen other manufacturers treated in the same way, because they had 
made camlets of a particular width, used in England and Germany, 
for which there was a great demand from Spain, Portugal, and 
other countries, and from several parts of France, while the French 
regulations prescribed other widths for camlets." 

The time is gone by, when such applications as these of the 
principle of " paternal government " would be attempted in even 
the least enlightened country of the European commonwealth of 
nations. In such cases as those cited, all the general objections to 
government interference are valid, and several of them in nearly 
their highest degree. But we must now turn to the second part 
of our task, and direct our attention to cases, in which some of 
those general objections are altogether absent, while those which 
can never be got rid of entirely are overruled by counter-considera- 
tions of still greater importance. 

We have observed that, as a general rule, the business of life 
is better performed when those who have an immediate interest in 
it are left to take their own course, uncontrolled either by the mandate 
of the law or by the meddling of any public functionary. The 
persons, or some of the persons, who do the work, are likely to be 
better judges than the government, of the means of attaining the 
particular end at which they aim. Were we to suppose, what is not 
very probable, that the government has possessed itself of the best 
knowledge which had been acquired up to a given time by the 
persons most skilled in the occupation ; even then the individual 
agents have so much stronger and more direct an interest in the 
result, that the means are far more likely to be improved and 
perfected if left to their uncontrolled choice. But if the workman 



LIMITS OF THE PROVINCE OF GOVERNMENT 953 

is generally the best selector of means, can it be affirmed with the 
same universality, that the consumer, or person served, is the most 
competent judge of the end ? Is the buyer always quahfied to judge 
of the commodity ? If not, the presumption in favour of the com- 
petition of the market does not apply to the case ; and if the com- 
modity be one in the quahty of which society has much at stake, 
the balance of advantages may be in favour of some mode and 
degree of intervention by the authorized representatives of the 
collective interest of the state, 

§ 8. Now, the proposition^that the consumer is a competent 
judge of the commodity, can be admitted only with numerous 
abatements and exceptions. He is generally the best judge (though 
even this is not true universally) of the material objects produced 
for his use. These are destined to supply some physical want, or 
gratify some taste or incHnation, respecting which wants or incUna- 
tions there is no appeal from the person who feels them ; or they 
are the means and appliances of some occupation, for the use of the 
persons engaged in it, who may be presumed to be judges of the 
things required in their own habitual employment. But there are 
other things, of the worth of which the demand of the market is by 
no means a test ; things of which the utiHty does not consist in 
ministering to incHnations, nor in serving the daily uses of life, and 
the want of which is least felt where the need is greatest. This is 
peculiarly true of those things which are chiefly useful as tending 
to raise the character of human beings. The uncultivated cannot 
be competent judges of cultivation. Those who most need to be 
made wiser and better, usually desire it least, and, if they desired 
it, would be incapable of finding the way to it by their own lights. 
It will continually happen, on the voluntary system, that, the end 
not being desired, the means will not be provided at all, or that, the 
persons requiring improvement having an imperfect or altogether 
erroneous conception of what they want, the supply called forth 
by the demand of the market will be anything but what is really 
required. Now any well-intentioned and tolerably civiHzed govern- 
ment may think, without presumption, that it does or ought to 
possess a degree of cultivation above the average of the conmiunity 
which it rules, and that it should therefore be capable of offering 
better education and better instruction to the people, than the 
greater number of them would spontaneously demand. Education, 
therefore, is one of those things which it is admissible in principle 



954 BOOK V. CHAPTER XL § 8 

that a government should provide for the people. The case is 

one to which the reasons of the non-interference principle do not 

necessarily or universally extend.* 

With regard to elementary education, the exception to ordinary 

rules may, I conceive, justifiably be carried still further. There 

are certain primary elements and means of knowledge, which it is 

in the highest degree desirable that all human beings born into the 

community should acquire during childhood. If their parents, 

or those on whom they depend, have the power of obtaining for 

them this instruction, and fail to do it, they commit a double breach 

of duty, towards the children themselves, and towards the members 

of the community generally, who are all Hable to suffer seriously 

from the consequences of ignorance and want of education in their 

fellow-citizens. It is therefore an allowable exercise of the powers 

of government to impose on parents the legal obhgation of giving 

elementary instruction to children. This, however, cannot fairly 

be done, without taking measures to insure that such instruction 

shall be always accessible to them, either gratuitously or at a trifling 

expense. 

* In opposition to these opinions, a writer, with whom on many points I 
agree, but whose hostiHty to government intervention seems to me too indis- 
criminate and unquahfied, M. Dunoyer, observes, that instruction, however 
good in itself, can only be useful to the public in so far as they are willing to 
receive it, and that the best proof that the instruction is suitable to their wants 
is its success as a pecuniary enterprise. This argument seems no more con- 
clusive respecting instruction for the mind, than it would be respecting medicine 
for the body. No medicine will do the patient any good if he cannot be in- 
duced to take it ; but we are not bound to admit as a corollary from this, that 
the patient will select the right medicine without assistance. Is it not probable 
that a recommendation, from any quarter which he respects, may induce him 
to accept a better medicine than he would spontaneously have chosen ? This 
is, in respect to education, the very point in debate. Without doubt, in- 
struction which is so far in advance of the people that they cannot be induced 
to avail themselves of it, is to them of no more worth than if it did not exist. 
But between what they spontaneously choose, and what they will refuse to 
accept when offered, there is a breadth of interval proportioned to their defer- 
ence for the recommender. Besides, a thing of which the public are bad judges 
may require to be shown to them and pressed on their attention for a long time, 
and to prove its advantages by long experience, before they learn to appreciate 
it, yet they may learn at last ; which they might never have done, if the thing 
had not been thus obtruded upon them in act, but only recommended in theory. 
Now, a pecuniary speculation cannot wait years, or perhaps generations for 
success ; it must succeed rapidly, or not at all. Another consideration which 
M. Dunoyer seems to have overlooked, is, that institutions and modes of tuition 
which never could be made sufficiently popular to repay, with a profit, the 
expenses incurred on them, may be invaluable to the many by giving the highest 
quality of education to the few, and keeping up the perpetual succession of 
superior minds, by whom knowledge is advanced, and the community urged 
forward in civilization. 



LIMITS OF THE PROVINCE OF GOVERNMENT 955 

It may indeed be objected that the education of children is one 
of those expenses which parents, even of the labouring class, ought 
to defray ; that it is desirable that they should feel it incumbent 
on them to provide by their own means for the fulfilment of their 
duties, and that by giving education at the cost of others, just as 
much as by giving subsistence, the standard of necessary wages is 
proportionally lowered, and the springs of exertion and self-restraint 
in so much relaxed. This argument could, at best, be only vaHd 
if the question were that of substituting a public provision for what 
individuals would otherwise do for themselves ; if all parents in 
the labouring class recognised and practised the duty of giving 
instruction to their children at their own expense. But inasmuch 
as parents do not practise this duty, and do not include education 
among those necessary expenses which their wages must provide 
for, therefore the general rate of wages is not high enough to bear 
those expenses, and they must be borne from some other source. 
And this is not one of the cases in which the tender of help per- 
petuates the state of things which renders help necessary. Instruc- 
tion, when it is reaUy such, does not enervate, but strengthens as 
well as enlarges the active faculties : in whatever manner acquired, 
its effect on the mind is favourable to the spirit of independence : 
and when, unless had gratuitously, it would not be had at all, help 
in this form has the opposite tendency to that which in so many 
other cases makes it objectionable ; it is help towards doing without 
help. 

In England, and most European countries, elementary instruction 
cannot be paid for, at its full cost, from the common wages of 
unskilled labour, and would not if it could. The alternative, there- 
fore, is not between government and private speculation, but 
between a government provision and voluntary charity : between 
interference by government, and interference by associations of 
individuals, subscribing their own money for the purpose, like 
the two great School Societies. It is, of course, not desirable that 
anything should be done by funds derived from compulsory taxation, 
which is already suffiiciently well done by individual hberality. How 
far this is the case with school instruction, is, in each particular 
instance, a question of fact. The education provided in this country 
on the voluntary principle has of late been so much discussed, 
that it is needless in this place to criticise it minutely, and I shall 
merely express my conviction, that even in quantity it is [1848], 
and is Hkely to remain, altogether insufficient, while in quaUty, 



956 BOOK V. CHAPTER XI. § 9 

though with some shght tendency to improvement, it is never good 
except by some rare accident, and generally so bad as to be little 
more than nominal. I hold it therefore the duty of the government 
to supply the defect, by giving pecuniary support to elementary 
schools, such as to render them accessible to all the children of the 
poor, either freely, or for a payment too inconsiderable to be 
sensibly felt.^ 

One thing must be strenuously insisted on ; that the government 
must claim no monopoly for its education, either in the lower or in 
the higher branches ; must exert neither authority nor influence 
to induce the people to resort to its teachers in preference to others, 
and must confer no pecuUar advantages on those who have been 
instructed by them. Though the government teachers will probably 
be superior to the average of private instructors, they will not embody 
all the knowledge and sagacity to be found in all instructors taken 
together, and it is desirable to leave open as many roads as possible 
to the desired end. It is not endurable that a government should, 
either de jure or de facto, have a complete control over the education 
of the people. To possess such a control, and actually exert it, 
is to be despotic. A government which can mould the opinions 
and sentiments of the people from their youth upwards, can do 
with them whatever it pleases. Though a government, therefore, 
may, and in many cases ought to, establish schools and colleges, 
it must neither compel nor bribe any person to come to them ; nor 
ought the power of individuals to set up rival establishments to 
depend in any degree upDn its authorization. It would be justified 
in requiring from all the people that they shall possess instruction 
in certain things, but not in prescribing to them how or from whom 
they shall obtain it. 

§ 9. In the matter of education, the intervention of govern- 
ment is justifiable, because the case is not one in which the interest 
and judgment of the consumer are a sufficient security for the goodness 
of the commodity. Let us now consider another class of caseS;, 
where there is no person in the situation of a consumer, and where 
the interest and judgment to be relied on are those of the agent 

^ [The paragraph originally went on : " but which it might be proper to 
demand, merely in recognition of a principle : the remainder of the cost to be 
defrayed, as in Scotland, by a local rate, that the inhabitants of the locality 
might have a greater interest in watching over the management, and 
checking negligence and abuse." These words were omitted in the 4th 
ed. (1857).] 



LIMITS OF THE PROVINCE OF GOVERNMENT 957 

himself ; as in tlie conduct of any business in which he is exclusively- 
interested, or in entering into any contract or engagement by which 
he himself is to be bound. 

The ground of the practical principle of non-interference must 
here be, that most persons take a juster and more intelligent view 
of their own interest, and of the means of promoting it, than can 
either be prescribed to them by a general enactment of the legis- 
lature, or pointed out in the particular case by a pubHc functionary. 
The maxim is unquestionably sound as a general rule ; but there 
is no difficulty in perceiving some very large and conspicuous 
exceptions to it. These may be classed under several heads. 

First : — The individual who is presumed to be the best judge 
of his own interests may be incapable of judging or acting for 
himself ; may be a lunatic, an idiot, an infant : or though not 
wholly incapable, may be of immature years and judgment. In 
this case the foundation of the laisser-faire principle breaks down 
entirely. The person most interested is not the best judge of the 
matter, nor a competent judge at all. Insane persons are every- 
where regarded as proper objects of the care of the state.* In the 
case of children and young persons, it is common to say, that though 
they cannot judge for themselves, they have their parents or other 
relatives to judge for them. But this removes the question into 
a different category ; making it no longer a question whether the 
government should interfere with individuals in the direction of 

* [1852] The practice of the English law with respect to insane persons, 
especially on the all-important point of the ascertainment of insanity, most 
urgently demands reform. At present no persons, whose property is worth 
coveting, and whose nearest relations are unscrupulous, or on bad terms with 
them, are secure against a commission of lunacy. At the instance of the persons 
who would profit by their being declared insane, a jury may be impanelled 
and an investigation held at the expense of the property, in which all their 
personal pecuharities, with all the additions made by the lying gossip of low 
servants, are poured into the credulous ears of twelve petty shopkeepers, 
ignorant of all ways of life except those of their own class, and regarding every 
trait of individuality in character or taste as eccentricity, and all eccentricity 
as either insanity or wickedness. If this sapient tribunal gives the desired 
verdict, the property is handed over to perhaps the last persons whom the 
rightful owner would have desired or suffered to possess it. Some recent in- 
stances of this kind of investigation have been a scandal to the administration 
of justice. Whatever other changes in this branch of law may be made, two 
at least are imperative : first, that, as in other legal proceedings, the expenses 
should not be borne by the person on trial, but by the promoters of the inquiry, 
subject to recovery of costs in case of success : and secondly, that the property 
of a person declared insane should in no case be made over to heirs while the 
proprietor is ahve, but should be managed by a public officer until his death 
or recovery. 



their own conduct and interests, but whether it should leave abso- 
lutely in their power the conduct and interests of somebody else. 
Parental power is as susceptible of abuse as any other power, and 
is, as a matter of fact, constantly abused. If laws do not succeed 
in preventing parents from brutally ill-treating, and even from 
murdering their children, far less ought it to be presumed that the 
interests of children will never be sacrificed, in more commonplace 
and less revolting ways, to the selfishness or the ignorance of their 
parents. Whatever it can be clearly seen that parents ought to do 
or forbear for the interests of children, the law is warranted, if it is 
able, in compelling to be done or forborne, and is generally bound to 
do so. To take an example from the peculiar province of poHtical 
economy ; it is right that children and young persons not yet arrived 
at maturity should be protected, so far as the eye and hand of the 
state can reach, from being over-worked. Labouring for too many 
hours in the day, or on work beyond their strength, should not be 
permitted to them, for if permitted it may always be compelled. 
Freedom of contract, in the case of children, is but another word 
for freedom of coercion. Education also, the best which circum- 
stances admit of their receiving, is not a thing which parents or 
relatives, from indifference, jealousy, or avarice, should have it in 
their power to withhold. 

. The reasons for legal intervention in favour of children, apply 
not less strongly to the case of those unfortunate slaves and victims 
of the most brutal part of mankind, the lower animals. It is by 
the grossest misunderstanding of the principles of Hberty, that the 
infliction of exemplary punishment on ruffianism practised towards 
these defenceless creatures has been treated as a meddhng by govern- 
ment with things beyond its province ; an interference with domestic 
life. The domestic life of domestic tyrants is one of the things 
which it is the most imperative on the law to interfere with ; and 
it is to be regretted that metaphysical scruples respecting the 
nature and source of the authority of government should induce 
many warm supporters of laws against cruelty to animals to seek 
for a justification of such laws in the incidental consequences of the 
indulgence of ferocious habits to the interests of human beings, 
rather than in the intrinsic merits of the case itself. What it would 
be the duty of a human being, possessed of the requisite physical 
strength, to prevent by force if attempted in his presence, it cannot 
be less incumbent on society generally to repress. The existing 
laws of England on the subject are chiefly defective in the trifling, 



LIMITS OF THE PROVINCE OF GOVERNMENT D59 

often almost nominal, maximumj to which the penalty even in the 
worst cases is limited. 

Among those members of the community whose freedom of 
contract ought to be controlled by the legislature for their own 
protection, on account (it is said) of their dependent position, it is 
frequently proposed to include women : and in the existing Factory 
Acts^ their labour, in common with that of young persons, has been 
placed under pecuHar restrictions. But the classing together, for 
this and other purposes, of women and children, appears to me both 
indefensible in principle and mischievous in practice. Children 
below a certain age cannot judge or act for themselves ; up to a 
considerably greater age they are inevitably more or less disquahfied 
for doing so ; but women are as capable as men of appreciating and 
managing their own concerns, and the only hindrance to their doing 
so arises from the injustice of their present social position. When 
the law makes everything which the wife acquires, the property of 
the husband, while by compelUng her to live with him it forces her 
to submit to almost any amount of moral and even physical tyranny 
which he may choose to inflict, there is some ground for regarding 
every act done by her as done under coercion : but it is the great 
error of reformers and philanthropists in our time to nibble at the 
consequences of unjust power, instead of redressing the injustice 
itself. If women had as absolute a control as men have, over their 
own persons and their own patrimony or acquisitions, there would 
be no plea for Hmiting their hours of labouring for themselves, in 
order that they might have time to labour for the husband, in what 
is called, by the advocates of restriction, his home. Women 
employed in factories are the only women in the labouring rank of 
life whose position is not that of slaves and drudges ; precisely 
because they cannot easily be compelled to work and earn wages 
in factories against their will. For improving the condition of 
women, it should, on the contrary, be an object to give them the 
readiest access to independent industrial employment, instead of 
closing, either entirely or partially, that which is already open to 
them.2 

§ 10. A second exception to the doctrine that individuals are 
the best judges of their own interest, is when an individual attempts 

i [" Acts " since 7th ed. (1871). Originally (1848) : " the recent Factory 
Act."] 

2 [See Appendix KK. The Factory Ads.] 



960 BOOK V. CHAPTER XI. § 11 

to decide irrevocably now wliat will be best for bis interest at some 
future and distant time. The presumption in favour of individual 
judgment is only legitimate, wbere tbe judgment is grounded on 
actual, and especially on present, personal experience ; not wbere 
it is formed antecedently to experience, and not suffered to be 
reversed even after experience Las condemned it. Wben persons 
bave bound tbemselves by a contract, not simply to do some one 
tbing, but to continue doing sometbing for ever or for a prolonged 
period, witbout any power of revoking tbe engagement, tbe pre- 
sumption wbicb tbeir perseverance in tbat course of conduct would 
otberwise raise in favour of its being advantageous to tbem, does 
not exist ; and any sucb presumption wbicb can be grounded on 
tbeir baving voluntarily entered into tbe contract, perbaps at an 
early age, and witbout any real knowledge of wbat tbey undertook, 
is commonly next to null. Tbe practical maxim of leaving contracts 
free is not applicable witbout great limitations in case of engagements 
in perpetuity ; and tbe law sbould be extremely jealous of sucb 
engagements ; sbould refuse its sanction to tbem, wben tbe obliga- 
tions tbey impose are sucb as tbe contracting party cannot be a 
competent judge of ; if it ever does sanction tbem, it sbould take 
every possible security for tbeir being contracted witb foresigbt 
and deUberation ; and in compensation for not permitting tbe parties 
tbemselves to revoke tbeir engagement, sbould grant tbem a release 
from it, on a sufficient case being made out before an impartial 
autbority. Tbese considerations are eminently appHcable to 
marriage, tbe most important of all cases of engagement for life.^ 

§ 11. Tbe tbird exception wbicb I sball notice, to tbe doctrine 
tbat government cannot manage tbe affairs of individuals as well 
as tbe individuals tbemselves, bas reference to tbe great class of 
cases in wbicb tbe individuals can only manage tbe concern by 
delegated agency, and in wbicb tbe so-called private D^anagement 
is, in point of fact, bardly better entitled to be called management 
by tbe persons interested tban administration by a public officer. 
Wbatever, if left to spontaneous agency, can only be done by joint- 
stock associations, will often be as well, and sometimes better done, 
as far as tbe actual work is concerned, by tbe state. Government 
management is, indeed, proverbially jobbing, careless, and ineffective, 
but so likewise bas generally been joint-stock management. Tbe 

^ [This last sentence added in 3rd ed. (1852).] 



LIMITS OF THE PROVINCE OF GOVERNMENT 961 

directors of a joint-stock company, it is true, are always share- 
holders ; but also the members of a government are invariably 
taxpayers ; and in the case of directors, no more than in that of 
governments, is their proportional share of the benefits of good 
management equal to the interest they may possibly have in mis- 
management, even without reckoning the interest of their ease. It 
may be objected, that the shareholders, in their collective character, 
exercise a certain control over the directors, and have almost always 
full power to remove them from office. Practically, however, the 
difficulty of exercising this power is found to be so great, that it is 
hardly ever exercised except in cases of such flagrantly unskilful, 
or, at least, unsuccessful management, as would generally produce 
the ejection from office of managers appointed by the government. 
Against the very inefiectual security afforded by meetings of share- 
holders, and by their individual inspection and inquiries, may be 
placed the greater publicity and more active discussion and comment, 
to be expected in free countries with regard to affairs in which the 
general government takes part. The defects, therefore, of govern- 
ment management do not seem to be necessarily much greater, if 
necessarily greater at all, than those of management by joint-stock. 
The true reasons in favour of leaving to voluntary associations 
all such things as they are competent to perform would exist in 
equal strength if it were certain that the work itself would be as 
well or better done by public officers. These reasons have been 
already pointed out : the mischief of overloading the chief function- 
aries of government with demands on their attention, and diverting 
them from duties which they alone can discharge, to objects which 
can be sufficiently well attained without them ; the danger of 
unnecessarily swelling the direct power and indirect influence of 
government, and multiplying occasions of collision between its 
agents and private citizens ; and the inexpediency of concentrating 
in a dominant bureaucracy all the skill and experience in the manage- 
ment of large interests, and all the power of organized action, 
existing in the community ; a practice which keeps the citizens in a 
relation to the government Uke that of children to their guardians, 
and is a main cause of the inferior capacity for poHtical life which 
has hitherto characterized the over-governed countries of the 
Continent, whether with or without the forms of representative 
government.* 

* A parallel case may be found in the distaste for politics, and absence of 
public spirit, by whicii women, as a class, are characterized in the present 

2 I 



982 BOOK V. CHAPTER XI. § 11 

But altliough, for these reasons, most things which are likely to 
be even tolerably done by voluntary associations should, generally 
speaking, be left to them ; it does not follow that the manner in 
which those associations perform their work should be entirely 
uncontrolled by the government. There are many cases in which 
the agency, of whatever nature, by which a service is performed, is 
certain, from the nature of the case, to be virtually single ; in which 
a practical monopoly, with all the power it confers of taxing the 
community, cannot be prevented from existing. I have already 
more than once adverted to the case of the gas and water companies, 
among which, though perfect freedom is allowed to competition, none 
really takes place, and practically they are found to be even more 
irresponsible, and unapproachable by individual complaints, than 
the government. There are the expenses without the advantages of 
plurality of agency ; and the charge made for services which cannot 
be dispensed with, is, in substance, quite as much compulsory taxa- 
tion as if imposed by law ; there are few householders who make any 
distinction between their " water-rate " and their other local taxes. 
In the case of these particular services, the reasons preponderate in 
favour of their being performed, like the paving and cleansing of the 
streets, not certainly by the general government of the state, but by 
the municipal authorities of the town, and the expense defrayed, 
as even now it in fact is, by a local rate. But in the many analogous 
cases which it is best to resign to voluntary agency, the community 
needs some other security for the fit performance of the service 
than the interest of the managers ; and it is the part of government, 
either to subject the business to reasonable conditions for the general 
advantage, or to retain such power over it that the profits of the 
monopoly may at least be obtained for the public. This applies 
to the case of a road, a canal, or a railway. These are always, in 
a great degree, practical monopolies ; and a government which 
concedes such monopoly unreservedly to a private company does 
much the same thing as if it allowed an individual or an association 

state of society, and which is often felt and complained of by political reformers, 
without, in general, making them willing to recognise, or desirous to remove, 
its cause. It obviously arises from their being taught, both by institutions and 
by the whole of their education, to regard themselves as entirely apart from 
politics. Wherever they have been politicians, they have shown as great 
interest in the subject, and as great aptitude for it, according to the spirit of 
their time, as the men with whom they were cotemporaries : in that period of 
history (for example) in which Isabella of Castile and Elizabeth of England 
were, not rare exceptions, but merely brilliant examples of a spirit and capacity 
very largely diffused among women of high station and cultivation in Europe. 



LIMITS OF THE I'KOVli^UJ^ Oi' UOVJi^Ki^MM^l W^ 

to levy any tax they chose, for their own benefit, on all the 
malt produced in the country, or on all the cotton imported into it. 
To make the concession for a limited time is generally justifiable, 
on the principle which justifies patents for inventions : but the state 
should either reserve to itself a reversionary property in such pubUc 
works, or should retain, and freely exercise, the right of fixing a 
maximum of fares and charges, and, from time to time, varying that 
maximum. It is perhaps necessary to remark, that the state may 
be the proprietor of canals or railways without itself working them ; 
and that they will almost always be better worked by means of a 
company renting the railway or canal for a limited period from the 
state. 

§ 12. To a fourth case of exception I must request particular 
attention, it being one to which, as it appears to me, the attention of 
political economists has not yet been sufficiently drawn. There are 
matters in which the interference of law is required, not to overrule 
the judgment of individuals respecting their own interest, but to 
give effect to that judgment : they being unable to give effect to it 
except by concert, which concert again cannot be effectual unless 
it receives vaHdity and sanction from the law. For illustration, and 
without prejudging the particular point, I may advert to the question 
of diminishing the hours of labour. Let us suppose, what is at least 
supposable, whether it be the fact or not — that a general reduction 
of the hours of factory labour, say from ten to nine,i would be for 
the advantage of the workpeople : that they would receive as high 
wages, or nearly as high, for nine hours' labour as they receive for ten. 
If this would be the result, and if the operatives generally are con- 
vinced that it would, the Hmitation, some may say, will be adopted 
spontaneously. I answer, that it will not be adopted unless the body 
of operatives bind themselves to one another to abide by it. A 
workman who refused to work more than nine hours while there 
were others who worked ten, would either not be employed at all, or 
if employed, must submit to lose one-tenth of his wages. However 
convinced, therefore, he may be that it is the interest of the class to 
work short time, it is contrary to his own interest to set the example, 
unless he is well assured that all or most others will follow it. But 
suppose a general agreement of the whole class : might not this be 

^ [The original " twelve to ten " (1848) was changed to the present text, 
and the consequent alterations made in the rest of the paragraph, in the 
6th ed. (1862).] 



effectual without the sanction of law ? Not unless enforced by 
opinion with a rigour practically equal to that of law. For however 
beneficial the observance of the regulation might be to the class 
collectively, the immediate interest of every individual would He in 
violating it ; and the more numerous those who adhered to the 
rule, the more would individuals gain by departing from it. If 
nearly all restricted themselves to nine hours, those who chose to 
work for ten would gain all the advantages of the restriction, together 
with the profit of infringing it ; they would get ten hours' wages f o'* 
nine hours' work, and an hour's wages besides. I grant that if a 
large majority adhered to the nine hours, there would be no harm 
done : the benefit would be, in the main, secured to the class, while 
those individuals who preferred to work harder and earn more, 
would have an opportunity of doing so. This certainly would be 
the state of things to be wished for ; and assuming that a reduction 
of hours without any diminution of wages could take place without 
expelHng the commodity from some of its markets — which is in 
every particular instance a question of fact; not of principle — the 
manner in which it would be most desirable that this effect should 
be brought about, would be by a quiet change in the general custom 
of the trade ; short hours becoming, by spontaneous choice, the 
general practice, but those who chose to deviate from it having the 
fullest liberty to do so. Probably, however, so many would prefer 
the ten hours' work on the improved terms, that the Kmitation could 
not be maintained as a general practice : what some did from choice, 
others would soon be obliged to do from necessity, and those who had 
chosen long hours for the sake of increased wages, would be forced 
in the end to work long hours for no greater wages than before. 
Assuming then that it really would be the interest of each to work 
only nine hours if he could be assured that all others would do the 
same, there might be no means of their attaining this object but by 
converting their supposed mutual agreement into an engagement 
under penalty, by consenting to have it enforced by law. I am not 
expressing any opinion in favour of such an enactment, which has 
never in this country been demanded, and which I certainly should 
not, in present circumstances, recommend 0- but it serves to exempUfy 
the manner in which classes of persons may need the assistance of 

^ [" Wliich has never . . . recommend " was added in the 5th ed. 
(1862). A Nine Hours Movement made its appearance in the 70's. The hours 
of labour for women, young persons and children in textile factories were reduced 
to 56i per week by the Act of 1874, and to 55^ by the Act of 1901. A Miners' 
Eight Hours Act was passed in 1908.] 



law, to give effect to their deliberate collective opinion of tlieir own 
interest, by affording to every individual a guarantee that his 
competitors will pursue the same course, without which he cannot 
safely adopt it himself. 

Another exemplification of the same principle is afforded by what 
is known as the Wakefield system of colonization. This system is 
grounded on the important principle, that the degree of productive- 
ness of land and labour depends on their being in a due proportion 
to one another ; that if a few persons in a newly-settled country 
attempt to occupy and appropriate a large district, or if each 
labourer becomes too soon an occupier and cultivator of land, 
there is a loss of productive power, and a great retardation of the 
progress of the colony in wealth and civiHzation : that nevertheless 
the instinct (as it may almost be called) of appropriation, and the 
feelings associated in old countries with landed proprietorship, 
induce almost every emigrant to take possession of as much land as 
he has the means of acquiring, and every labourer to become at once 
a proprietor, cultivating his own land with no other aid than that 
of his family. If this propensity to the immediate possession of 
land could be in some degree restrained, and each labourer induced 
to work a certain number of years on hire before he became a landed 
proprietor, a perpetual stock of hired labourers could be maintained, 
available for roads, canals, works of irrigation, &c.jand for the estab- 
lishment and carrying on of the different branches of town industry ; 
whereby the labourer, when he did at last become a landed proprietor, 
would find his land much more valuable, through access to markets, 
and facihty of obtaining hired labour. Mr. Wakefield therefore 
proposed to check the premature occupation of land, and dispersion 
of the people, by putting upon all unappropriated lands a rather 
high price, the proceeds of which were to be expended in conveying 
emigrant labourers from the mother country. 

This salutary provision, however, has been objected to, in the 
name and on the authority of what was represented as the great 
principle of poUtical economy, that individuals are the best judges 
of their own interest. It was said, that when things are left to 
themselves, land is appropriated and occupied by the spontaneous 
choice of individuals, in the quantities and at the times most advan- 
tageous to each person, and therefore to the community generally ; 
and that to interpose artificial obstacles to their obtaining land is 
to prevent them from adopting the course which in their own 
judgment is most beneficial to them, from a self-conceited notion 



of the legislator, that he knows what is most for their interest better 
than they do themselves. Now this is a complete misunderstanding, 
either of the system itself, or of the principle with which it is alleged 
to conflict. The oversight is similar to that which we have just 
seen exemplified on the subject of hours of labour. However bene- 
ficial it might be to the colony in the aggregate, and to each individual 
composing it, that no one should occupy more land than he can 
properly cultivate, nor become a proprietor until there are other 
labourers ready to take his place in working for hire ; it can never 
be the interest of an individual to exercise this forbearance, unless 
he is assured that others will do so too. Surrounded by settlers who 
have each their thousand acres, how is he benefited by restricting 
himself to fifty ? or what does a labourer gain by deferring the 
acquisition altogether for a few years, if all other labourers rush to 
convert their first earnings into estates in the wilderness, several 
miles apart from one another ? If they, by seizing on land, prevent 
the formation of a class of labourers for wages, he will not, by post- 
poning the time of his becoming a proprietor, be enabled to employ the 
land with any greater advantage when he does obtain it ; to what 
end, therefore, should he place himself in what will appear to him and 
others a position of inferiority, by remaining a hired labourer, when 
all around him are proprietors ? It is the interest of each to do what 
is good for all, but only if others will do likewise. 

The principle that each is the best judge of his own interest, 
understood as these objectors understand it, would prove that 
governments ought not to fulfil any of their acknowledged duties — 
ought not, in fact, to exist at all. It is greatly the interest of the 
community, collectively and individually, not to rob or defraud one 
another ; but there is not the less " necessity for laws to punish 
robbery and fraud ; because, though it is the interest of each that 
nobody should rob or cheat, it is not any one's interest to refrain 
from robbing and cheating others when all others are permitted to 
rob and cheat him. Penal laws exist at all, chiefly for this reason 
— because even an unanimous opinion that a certain line of conduct 
is for the general interest does not always make it people's individual 
interest to adhere to that line of conduct. 

§ 13. Fifthly ; the argument against government interference, 
grounded on the maxim that individuals are the best judges of their 
own interest, cannot apply to the very large class of cases, in which 
those acts of individuals with which the government claims to inter- 



» 

fere, are not done by tliose individuals for their own interest, but 
for tbe interest of other people. This includes, among other things, 
the important and much agitated subject of public charity. Though 
individuals should, in general, be left to do for themselves whatever 
it can reasonably be expected that they should be capable of doing, 
yet when they aie at any rate not to be left to themselves, but to be 
helped by other people, the question arises whether it is better that 
they should receive this help exclusively from individuals, and 
therefore uncertainly and casually, or by systematic arrangements, 
in which society acts through its organ, the state. 

This brings us to the subject of Poor Laws ; a subject which 
would be of very minor importance if the habits of all classes of the 
people were temperate and prudent, and the diffusion of property 
satisfactory ; but of the greatest moment in a state of things so 
much the reverse of this, in both points, as that which the British 
Islands present. 

Apart from any metaphysical considerations respecting the 
foundation of morals or of the social union, it will be admitted to be 
right that human beings should help one another ; and the more so, 
in proportion to the urgency of the need : and none needs help so 
urgently as one who . is starving. The claim to help, therefore, 
created by destitution, is one of the strongest which can exist ; and 
there is prima facie the amplest reason for making the relief of so 
extreme an exigency as certain to those who require it as by any 
arrangements of society it can be made. 

On the other hand, in all cases of helping, there are two sets of 
consequences to be considered ; the consequences of the assistance 
itself, and the consequences of relying on the assistance. The former 
are generally beneficial, but the latter, for the most part, injurious ; 
so much so, in many cases, as greatly to outweigh the value of the 
benefit. And this is never more Hkely to happen than in the very 
cases where the need of help is the most intense. There are few 
things for which it is more mischievous that people should rely on 
the habitual aid of others, than for the means of subsistence, and 
unhappily there is no lesson which they more easily learn. The 
problem to be solved is therefore one of peculiar nicety as well as 
importance ; how to give the greatest amount of needful help, with 
the smallest encouragement to undue reliance on it. 

Energy and self-dependence are, however, liable to be impaired 
by the absence of help, as well as by its excess. It is even more 
fatal to exertion to have no hope of succeeding by it, than to be assured 



of succeeding without it. When the condition of any one is so 
disastrous that his energies are paralyzed by discouragement, 
assistance is a tonic, not a sedative : it braces instead of deadening 
the active faculties : always provided that the assistance is not such 
as to dispense with self-help, by substituting itself for the person's 
own labour, skill, and prudence, but is limited to affording him a 
better hope of attaining success by those legitimate means. This 
accordingly is a test to which all plans of philanthropy and benevo- 
lence should be brought, whether intended for the benefit of 
individuals or of classes, and whether conducted on the voluntary 
or on the government principle. 

In so far as the subject admits of any general doctrine or maxim, 
it would appear to be this — that if assistance is given in such a manner 
that the condition of the person helped is as desirable as that of 
the person who succeeds in doing the same thing without help, the 
assistance, if capable of being previously calculated on, is mischiev- 
ous : but if, while available to everybody, it leaves to every one a 
strong motive to do without it if he can, it is then for the most part 
beneficial. This principle, applied to a system of public charity, 
is that of the Poor Law of 1834. If the condition of a person receiv- 
ing reUef is made as ehgible as that of the labourer who supports 
himself by his own exertions, the system strikes at the root of all 
individual industry and self-government ; and, if fully acted up to, 
would require as its supplement an organized system of compulsion 
for governing and setting to work Hke cattle those who had been 
removed from the influence of the motives that act on human beings. 
But if, consistently with guaranteeing all persons against absolute 
want, the condition of those who are supported by legal charity 
can be kept considerably less desirable than the condition of those 
who find support for themselves, none but beneficial consequences 
can arise from a law which renders it impossible for any person, 
except by his own choice, to die from insufiiciency of food. That in 
England at least this supposition can be reahzed, is proved by the 
experience of a long period preceding the close of the last century, as 
well as by that of many highly pauperized districts in more recent 
times, which have been dispauperized by adopting strict rules of 
poor-law administration, to the great and permanent benefit of the 
whole labouring class. There is probably no country in which, by 
varying the means suitably to the character of the people, a legal 
provision for the destitute might not be made compatible with the 
observance of the conditions necessary to its being innocuous. 



LIMITS OF THE PROVINCE OF GOVERNMENT 969 

Subject to these conditionSj I conceive it to be higUy desirable 
tliat the certainty of subsistence should be held out by law to the 
destitute able-bodied, rather than that their rehef should depend 
on voluntary charity. In the first place, charity almost always 
does too much or too little : it lavishes its bounty in one place, and 
leaves people to starve in another. Secondly, since the state must 
necessarily provide subsistence for the criminal poor while under- 
going pimishment, not to do the same for the poor who have not 
offended is to give a premium on crime. And lastly, if the poor are 
left to individual charity, a vast amount of mendicity is inevitable.^ 
What the state may and should abandon to private charity, is the 
task of distinguishing between one case of real necessity and another. 
Private charity can give more to the more deserving. The state 
must act by general rules. It cannot undertake to discriminate 
between the deserving and the undeserving indigent. It owes no 
more than subsistence to the first, and can give no less to the last. 
What is said about the injustice of a law which has no better treat- 
ment for the merely unfortunate poor than for the ill-conducted, 
is founded on a misconception of the province of law and pubhc 
authority. The dispensers of public relief have no business to be 
inquisitors. Guardians and overseers are not fit to be trusted to 
give or withhold other people's money according to their verdict on 
the moraHty of the person soHciting it ; and it would show much 
ignorance of the ways of mankind to suppose that such persons, even 
in the almost impossible case of their being quahfied, will take the 
trouble of ascertaining and sifting the past conduct of a person in 
distress, so as to form a rational judgment on it. Private charity 
can make these distinctions ; and in bestowing its own money, is 
entitled to do so according to its own judgment. It should under- 
stand that this is its pecuHar and appropriate province, and that it is 
conmiendable or the contrary, as it exercises the function with more 
or less discernment. But the administrators of a pubhc fund ought 
not to be required to do more for anybody, than that minimum 
which is due even to the worst. If they are, the indulgence very 
speedily becomes the rule, and refusal the more or less capricious or 
tyrannical exception.^ 

§ 14. Another class of cases which faU within the same general 

1 [The remark in tlie original, " and to get rid of this is important, even 
as a matter of justice," was omitted from the 3rd ed. (1852).] 

2 [See Appendix LL. The Poor Law.'] 



970 BOOK V. CHAPTER XI. § 14 

principle as the case of public charity, are those in which the acts 
done by individuals, though intended solely for their own benefit, 
involve consequences extending indefinitely beyond them, to interests 
of the nation or of posterity, for which society in its collective capacity 
is alone able, and alone bound, to provide. One of these cases is that 
of Colonization. If it is desirable, as no one will deny it to be, 
that the planting of colonies should be conducted, not with an 
exclusive view to the private interests of the first founders, but with 
a deliberate regard to the permanent welfare of the nations after- 
wards to arise from these small beginnings ; such regard can only be 
secured by placing the enterprise, from its commencement, under 
regulations constructed with the foresight and enlarged views of 
philosophical legislators ; and the government alone has power 
either to frame such regulations, or to enforce their observance. 

The question of government intervention in the work of Coloniza- 
tion involves the future and permanent interests of civihzation itself, 
and far outstretches the comparatively narrow hmits of purely 
economical considerations. But even with a view to those con- 
siderations alone, the removal of population from the overcrowded 
to the unoccupied parts of the earth's surface is one of those works 
of eminent social usefulness, which most require, and which at the 
same time best repay, the intervention of government. 

To appreciate the benefits of colonization, it should be considered 
in its relation, not to a single country, but to the collective economical 
interests of the human race. The question is in general treated too 
exclusively as one of distribution ; of reheving one labour market 
and supplying another. It is this, but it is also a question of pro- 
duction, and of the most efficient employment of the productive 
resources of the world. Much has been said of the good economy 
of importing commodities from the place where they can be bought 
cheapest ; while the good economy of producing them where they 
can be produced cheapest is comparatively Httle thought of. If 
to carry consumable goods from the places where they are superabun- 
dant to those where they are scarce is a good pecuniary speculation, 
is it not an equally good speculation to do the same thing with 
regard to labour and instruments ? The exportation of labourers 
and capital from old to new countries, from a place where their 
productive power is less to a place where it is greater, increases by 
so much the aggregate produce of the labour and capital of the world. 
It adds to the joint wealth of the old and the new country, what 
amounts in a short period to many times the mere cost of efEecting the 



LIMITS OF THE PROVINCE OF GOVERNMENT 971 

transport. There needs be no hesitation in affirming that Coloniza- 
tion, in the present state of the world, is the best affair of business, 
in which the capital of an old and wealthy country can engage. 

It is equally obvious, however, that Colonization on a great scalo 
can be undertaken, as an affair of business, only by the government, 
or by some combination of individuals in complete understanding 
with the government ; except under such very peculiar circum- 
stances as those which succeeded the Irish famine.^ Emigration on 
the voluntary principle rarely has any material influence in lightening 
the pressure of population in the old country, though as far as it goes 
it is doubtless a benefit to the colony. Those labouring persons who 
voluntarily emigrate are seldom the very poor ; they are small 
farmers with some little capital, or labourers who have saved 
something, and who, in removing only their own labour from the 
crowded labour-market, withdraw from the capital of the country 
a fund which maintained and employed more labourers than them- 
selves. Besides, this portion of the community is so limited in 
number, that it might be removed entirely, without making any 
sensible impression upon the numbers of the population, or even 
upon the annual increase. Any considerable emigration of labour 
is only practicable, when its cost is defrayed, or at least advanced, 
by others than the emigrants themselves. Who then is to advance 
it ? Naturally, it may be said, the capitalists of the colony, who 
require the labour, and who intend to employ it. But to this there 
is the obstacle, that a capitalist, after going to the expense of 
carrying out labourers, has no security that he shall be the person 
to derive any benefit from them. If all the capitalists of the colony 
were to combine, and bear the expense by subscription, they would 
stiU have no security that the labourers, when there, would continue 
to work for them. After working for a short time and earning a few 
pounds, they always, unless prevented by the government, squat 
on unoccupied land, and work only for themselves. The experi- 
ment has been repeatedly tried whether it was possible to enforce 
contracts for labour, or the repayment of the passage money of 
emigrants to those who advanced it, and the trouble and expense 
have always exceeded the advantage. The only other resource is 
the voluntary contributions of parishes or individuals, to rid them- 
selves of surplus labourers who are already, or who are likely to 
become, locally chargeable on the poor-rate. Were this speculation 

* [The exception was added in the 5th ed. (1862). In the next line 
" cannot have " had been changed into " rarely has " in the 3rd (1852).] 



972 BOOK V. CHAPTER XL § 14 

to become general, it miglit produce a sufficient amount of emigration 
to clear off the existing unemployed population, but not to raise the 
wages of the employed : and the same thing would require to be 
done over again in less than another generation. 

One of the principal reasons why Colonization should be a 
national undertaking is that in this manner alone, save in highly 
exceptional cases, can emigration be self-supporting. The exporta- 
tion of capital and labour to a new country being, as before observed, 
one of the best of all affairs of business, it is absurd that h should not, 
like other affairs of business, repay its own expenses. Of the great 
addition which it makes to the produce of the world, there can be 
no reason why a sufficient portion should not be intercepted, and 
employed in reimbursing the outlay incurred in effecting it. For 
reasons already given, no individual, or body of individuals, can 
reimburse themselves for the expense ; the government, however, 
can. It can take from the annual increase of wealth, caused by the 
emigration, the fraction which suffices to repay with interest what the 
emigration has cost. The expenses of emigration to a colony ought 
to be borne by the colony ; and this, in general, is only possible 
when they are borne by the colonial government. 

Of the modes in which a fund for the support of colonization can 
be raised in the colony, none is comparable in advantage to that 
which was first suggested, and so ably and perseveringly advocated, 
by Mr. Wakefield : the plan of putting a price on all unoccupied 
land and devoting the proceeds to emigration. The unfounded and 
pedantic objections to this plan have been answered in a former 
part of this chapter : we have now to speak of its advantages. First, 
it avoids the difficulties and discontents incident to raising a large 
annual amount by taxation ; a thing which it is almost useless to 
attempt with a scattered population of settlers in the wilderness, 
who, as experience proves, can seldom be compelled to pay direct 
taxes, except at a cost exceeding their amount ; while in an infant 
community indirect taxation soon reaches its limit. The sale of 
lands is thus by far the easiest mode of raising the requisite funds. 
But it has other and still greater recommendations. It is a bene- 
ficial check upon the tendency of a population of colonists to adopt 
the tastes and inclinations of savage life, and to disperse so widely 
as to lose all the advantages of commerce, of markets, of separation 
of employments, and combination of labour. By making it necessary 
for those who emigrate at the expense of the fund to earn a con- 
siderable sum before they can become landed proprietors, it keeps 



LIMnS OF THE PROVINCE OF GOVERmiENT 973 

up a perpetual succession of labourers for liire, who in every country 
are a most important auxiliary even to peasant proprietors : and 
by diminisMng the eagerness of agricultural speculators to add to 
their domain, it keeps the settlers within reach of each other for 
purposes of co-operation, arranges a numerous body of them within 
easy distance of each centre of foreign commerce and non-agricul- 
tural industry, and insures the formation and rapid growth of towns 
and town products. This concentratiouj compared with the dis- 
persion which uniformly occurs when unoccupied land can be had 
for nothing, greatly accelerates the attainment of prosperity, and 
enlarges the fund which may be drawn upon for further emigration. 
Before the adoption of the Wakefield system, the early years 
of all new colonies were full of hardship and difficulty : the last 
colony founded on the old principle, the Swan Eiver settlement, 
being one of the most characteristic instances. In all subsequent 
colonization, the Wakefield principle has been acted upon, though 
imperfectly,! a part only of the proceeds of the sale of land being 
devoted to emigration : yet wherever it has been introduced at all, 
as in South Australia, Victoria, and New Zealand, the restraint put 
upon the dispersion of the settlers, and the influx of capital caused 
by the assurance of being able to obtain hired labour, has, in spite 
of many difficulties and much mismanagement, produced a sudden- 
ness and rapidity of prosperity more like fable than reaHty.* 2 

The self-supporting system of colonization, once established, 
would increase in efficiency every year ; its efiect would tend to 
increase in geometrical progression : for since every able-bodied 
emigrant, until the country is fully peopled, adds in a very short 
time to its wealth, over and above his own consumption, as much as 
would defray the expense of bringing out another emigrant, it follows 

^ [" The price of land being generally fixed too low and " omitted from 3rd 
ed. (1852).] 

* [1857] The objections which have been made, with so much virulence, in 
some of these colonies, to the Wakefield system, apply, in so far as they have 
any validity, not to the principle, but to some provisions which are no part of 
the system, and have been most unnecessarily and improperly engrafted on it ; 
such as the offering only a limited quantity of land for sale, and that by auction, 
and in lots of not less than 640 acres, instead of selhng all land which is asked 
for, and allowing to the buyer unlimited freedom of choice, both as to quantity 
and situation, at a fixed price. 

2, [From the 3rd ed. was omitted the following passage of the original (1848) : 
" The oldest of the Wakefield colonies. South Australia, is scarcely " (in 2nd 
ed. (1849), " little more than ") " twelve years old ; Port Philip " (Victoria) *' is 
still more recent ; and they are probably at this moment the two places, in the 
known world, where labour on the one hand, and capital on the other, are the 
inost highly remunerated."] 



974 BOOK V. CHAPTER XI. § 14 . 

that tlie greater the number already sent, the greater number might 
continue to be sent, each emigrant laying the foundation of a 
succession of other emigrants at short intervals without fresh 
expense, until the colony is filled up. It would therefore be worth 
while, to the mother country, to accelerate the early stages of this 
progression, by loans to the colonies for the purpose of emigration, 
repayable from the fund formed by the sales of land. In thus 
advancing the means of accomplishing a large immediate emigration, 
it would be investing that amount of capital in the mode, of all 
others, most beneficial to the colony ; and the labour and savings 
of these emigrants would hasten the period at which a large sum 
would be available from sales of land. It would be necessary, in 
order not to overstock the labour market, to act in concert with the 
persons disposed to remove their own capital to the colony. The 
knowledge that a large amount of hired labour would be available, 
in so productive a field of employment, would insure a large emigra- 
tion of capital from a country, like England, of low profits and 
rapid accumulation : and it would only be necessary not to send out 
a greater number of labourers at one time than this capital could 
absorb and employ at high wages. 

Inasmuch as, on this system, any given amount of expenditure, 
once incurred, would provide not merely a single emigration, but a 
perpetually flowing stream of emigrants, which would increase in 
breadth and depth as it flowed on ; this mode of reheving over- 
population has a recommendation, not possessed by any other plan 
ever proposed for making head against the consequences of increase 
without restraining the increase itself : there is an element of 
indefiniteness in it ; no one can perfectly foresee how far its 
influence, as a vent for surplus population, might possibly reach. 
There is hence the strongest obHgation on the government of a 
country like our own, with a crowded population, and unoccupied 
continents under its command, to build, as it were, and keep 
open, in concert with the colonial governments, a bridge from 
the mother country to those continents, by establishing the self- 
supporting system of colonization on such a scale, that as great an 
amount of emigration as the colonies can at the time accommodate 
may at all times be able to take place without cost to the emigrants 
themselves. 

^ The importance of these considerations, as regards the British 

* [The reference to Irish emigration was added in the 3rd ed. (1852), and 
concluded with this sentence : " While the stream of this emigration continues 



LIMITS OF THE PROVINCE OF GOVERNMENT 975 

islands, lias been of late considerably diminished by tbe unparalleled 
amount of spontaneous emigration from Ireland ; an emigration 
not solely of small farmers, but of the poorest class of agricultural 
labourers, and which, is at once voluntary and self-supporting, the 
succession of emigrants being kept up by funds contributed from 
the earnings of their relatives and connexions who had gone before. 
To this has been added a large amount of voluntary emigration to 
the seats of the gold discoveries, which has partly supplied the wants 
of our most distant colonies, where, both for local and national 
interests, it was most of all required. But the stream of both these 
emigrations has already considerably slackened, and though that 
from Ireland has since partially revived, it is not certain that the 
aid of government in a systematic form, and on the self-supporting 
principle, will not again become necessary to keep the communication 
open between the hands needing work in England, and the work 
which needs hands elsewhere. 

§ 15. The same principle which points out colonisation, and 
the relief of the indigent, as cases to which the principal objection 
to government interference does not apply, extends also to a variety 
of cases, in which important public services are to be performed, 
while yet there is no individual specially interested in performing 
them, nor would any adequate remuneration naturally or spon- 
taneously attend their performance. Take for instance a voyage 
of geographical or scientific exploration. The information sought 
may be of great public value, yet no individual would derive any 
benefit from it which would repay the expense of fitting out the 
expedition ; and there is no mode of intercepting the benefit on its 
way to those who profit by it, in order to levy a toll for the remunera- 
tion of its authors. Such voyages are, or might be, undertaken 
by private subscription ; but this is a rare and precarious resource. 
Instances are more frequent in which the expense has been borne 
by public companies or philanthropic associations ; but in general 
such enterprises have been conducted at the expense of government, 
which is thus enabled to entrust them to the persons in its judgment 

flowing, as broad and deep as at present, the principal office required from 
government would be to direct a portion of it to quarters (such as Australia) 
where, both for local and national interests, it is most of all required, but which 
it does not suffioiently reach in its spontaneous course." This was replaced in 
the 4th ed. (1857) by the reference to emigration to the gold fields. The 
slackening of the stream was noticed in the 5th ed. (1862), and the partial 
revival of Irish emigration in the 6th ed. (1865).] 



15UUK V. UJlAriJ^K Al. S 15 

best qualified for tlie task. Again, it is a proper office of govern- 
ment to build and maintain lighthouses, establish buoys, &c., for 
the security of navigation : for since it is impossible that the ships 
at sea which are benefited by a lighthouse should be made to pay a 
toll on the occasion of its use, no one would build Ughthouses from 
motives of personal interest, unless indemnified and rewarded from 
a compulsory levy made by the state. There are many scientific 
researches, of great value to a nation and to mankind, requiring 
assiduous devotion of time and labour, and not unfrequently great 
expense, by persons who can obtain a high price for their services 
in other ways. If the government had no power to grant indemnity 
for expense, and remuneration for time and labour thus employed, 
such researches could only be undertaken by the very few persons 
who, with an independent fortune, unite technical knowledge, 
laborious habits, and either great public spirit, or an ardent desire 
of scientific celebrity. 

Connected with this subject is the question of providing by means 
of endowments or salaries, for the maintenance of what has been 
called a learned class. The cultivation of speculative knowledge, 
though one of the most useful of all employments, is a service 
rendered to a community collectively, not individually, and one 
consequently for which it is, prima faciei reasonable that the com- 
munity collectively should pay ; since it gives no claim on any 
individual for a pecuniary remuneration ; and unless a provision 
is made for such services from some public fund, there is not only 
no encouragement to them, but there is as much discouragement as 
is impHed in the impossibiUty of gaining a living by such pursuits, 
and the necessity consequently imposed on most of those who would 
be capable of them to employ the greatest part of their time in 
gaining a subsistence. The evil, however, is greater in appearance 
than in reality. The greatest things, it has been said, have generally 
been done by those who had the least time at their disposal ; and 
the occupation of some hours every day in a routine employment, 
has often been found compatible with the most brilliant achieve- 
ments in Hterature and philosophy. Yet there are investigations and 
experiments which require not only a long but a continuous devotion 
of time and attention : there are also occupations which so engross 
and fatigue the mental faculties, as to be inconsistent with any 
vigorous employment of them upon other subjects, even in intervals 
of leisure. It is highly desirable, therefore, that there should be a 
mode of insuring to the pubHc the services of scientific discoverers, 



LIMITS OF THE PROVINCE OF GOVERNMENT 97? 

and perhaps of some other classes of savants, by affording them 
the means of support consistently with devoting a sufficient portion 
of time to their peculiar pursuits. The fellowships of the Uni- 
versities are an institution excellently adapted for such a purpose ; 
but are hardly ever appUed to it, being bestowed, at the best, as a 
reward for past proficiency, in committing to memory what has 
been done by others, and not as the salary of future labours in 
the advancement of knowledge. In some countries, Academies of 
science, antiquities, history, &c., have been formed with emoluments 
annexed. The most effectual plan, and at the same time least 
liable to abuse, seems to be that of conferring Professorships, with 
duties of instruction attached to them. The occupation of teaching 
a branch of knowledge, at least in its higher departments, is a help 
rather than an impediment to the systematic cultivation of the 
subject itself. The duties of a professorship almost always leave 
much time for original researches ; and the greatest advances 
which have been made in the various sciences, both moral and 
physical, have originated with those who were public teachers of 
them ; from Plato and Aristotle to the great names of the Scotch, 
French, and German Universities. I do not mention the English, 
because until very lately their professorships have been, as is well 
known, little more than nominal. In the case, too, of a lecturer 
in a great institution of education, the public at large has the means 
of judging, if not the quality of the teaching, at least the talents and 
industry of the teacher ; and it is more difficult to misemploy the 
power of appointment to such an office, than to job in pensions and 
salaries to persons not so directly before the public eye. 

It may be said generally, that anything which it is desirable 
should be done for the general interests of mankind or of future 
generations, or for the present interests of those members of the 
community who require external aid, but which is not of a nature 
to remunerate individuals or associations for undertaking it, is in 
itself a suitable thing to be undertaken by government : though, 
before making the work their own, governments ought always to 
consider if there be any rational probability of its being done on what 
is called the voluntary principle, and if so, whether it is likely to be 
done in a better or more effectual manner by government agency, 
than by the zeal and liberality of individuals. 

§ 16. The preceding heads comprise, to the best of my judgment, 
the whole of the exceptions to the practical maxim, that the business 



978 BOOK V. CHAPTER XL § 16 

of society can be best performed by private and voluntary agency. 
It is, however, necessary to add, that the intervention of govern- 
ment cannot always practically stop short at the limit which defines 
the cases intrinsically suitable for it. In the particular circum- 
stances of a given age or nation, there is scarcely anything really 
important to the general interest, which it may not be desirable, 
or even necessary, that the government should take upon itself, 
not because private individuals cannot effectually perform it, but 
because they will not. At some times and places there will be 
no roads, docks, harbours, canals, works of irrigation, hospitals, 
schools, colleges, printing-presses, unless the government establishes 
them ; the public being either too poor to command the necessary 
resources, or too little advanced in intelligence to appreciate the ends, 
or not sufficiently practised in joint action to be capable of the 
means. This is true, more or less, of all countries inured to despotism, 
and particularly of those in which there is a very wide distance in 
civilization between the people and the government : as in those 
which have been conquered and are retained in subjection by a 
more energetic and more cultivated people. In many parts of the 
world, the people can do nothing for themselves which requires 
large means and combined action : all such things are left undone, 
unless done by the state. In these cases, the mode in which the 
government can most surely demonstrate the sincerity with which 
it intends the greatest good of its subjects, is by doing the things 
which are made incumbent on it by the helplessness of the public, 
in such a manner as shall tend not to increase and perpetuate, 
but to correct that helplessness. A good government will give all 
its aid in such a shape as to encourage and nurture any rudiments 
it may find of a spirit of individual exertion. It will be assiduous 
in removing obstacles and discouragements to voluntary enterprise, 
and in giving whatever facilities and whatever direction and guidance 
may be necessary : its pecuniary means will be applied, when 
practicable, in aid of private efforts rather than in supercession of 
them, and it will call into play its machinery of rewards and honours 
to elicit such efforts. Government aid, when given merely iji 
default of private enterprise, should be so given as to be as far 
as possible a course of education for the people in the art of 
accomplishing great objects by individual energy and voluntary 
co-operation. 

I have not thought it necessary here to insist on that part of the 
functions of government which all admit to be indispensable, the 



LIMITS OF THE PROVINCE OF GOVERNIVIEIST 979 

function of proHbiting and punishing sucli conduct on tlie part of 
individuals in the exercise of their freedom as is clearly injurious 
to other persons, whether the case be one of force, fraud, or negligence. 
Even in the best state which society has yet reached, it is lamentable 
to think how great a proportion of all the efforts and talents in the 
world are employed in merely neutralizing one another. It is the 
proper end of government to reduce this wretched waste to the 
smallest possible amount, by taking such measures as shall cause 
the energies now spent by mankind in injuring one another, or in 
protecting themselves against injury, to be turned to the legitimate 
employment of the human faculties, that of compelling the powers 
of nature to be more and more subservient to physical and moral 
good.i 

* [See Appendix MM. Limits of the Sphere of Government.] 



BIBLIOGRAPHICAL APPENDIX 



Fob tlie history of economic investigation and discussion since tlie publication 
of Mill's Principles in 1848, the only general work to which reference can be 
made in English is Palgrave's Dictionary of Political Economy (1894-1908), 
which contains many useful articles under the headings of the various subjects 
and authors. Readers^of French will obtain some assistance from Block, Les 
Progres de la Science Economique depuis Adam Smith (1890), representing the 
strictest school of French orthodoxy, and from Gide and Rist, Histoire des 
Doctrines Economiques (1909), written from a more modern point of view. 
Readers of German will naturally refer to Conrad's Handwbrterhuch der 
Staatswissenschaften, of which the third and enlarged edition is now being 
issued; and they will find a number of valuable reviews of the course of 
discussion of the several main topics in the series of monographs brought 
together under the title Die Entwicklung der deutschen VolkswirtJischafislehre 
im neunzehnten Jahrhundert (1908). 

A.— The Mercantile System [p. 6) 

Mill's account is based on that of Adam Smith, Wealth of Nations, bk. iv. 
ch. i. Much investigation has subsequently taken place into mercantilist 
literature and poUcy, some results of which may be seen in Roscher, Geschichte 
der National-Oekonomik in Deutschland (1874), § 57, closely followed (with a 
Positivist colouring) by Ingram, History of Political Economy (1888) ; in 
Schmoller, The Mercantile System and its Historical Significance (1884 ; Eng. 
trans. 1896), and Grundriss der Allgemeinen Volkswirthschaftslehre (1900), i. 
§ 39 (in French trans., Principes d'Economie Politique (1905-1908), i. § 39) ; 
in Cunningham, Growth of English Industry and Commerce, vol. ii. pt. i.. 
The Mercantile System (1903) ; and in Unwin, Industrial Organisation in the 
Sixteenth and Seventeenth Centuries (1904). One of the most significant of 
EngHsh mercantilist writings, Mun's England's Treasure by Forraign Trade 
(1664), has been recently republished (1895). 

B. — ^The Definition of Wealth (p. 9) 

Mill's definition has been criticised, from very different points of view, by 
Jevons, Principles of Economics (posthumously pubKshed, 1905), p. 14 ; Nichol- 
son, Pr^■nc^■pZes of Political Economy, i. (1893), Introduction; and Ruskin, Unto 
this Last (1862), Preface, and Munera Pulveris (1863), Preface. For a recent 
classification of " desirable things," see Marshall, Principles of Economics 
(1890 ; 5th ed. 1907), bk. ii. ch. 2. Sidgwick, Principles of Political Economy 
(1883), bk. i. ch. ii., points out that, though in England " Wealth " has commonly 
been regarded as the most fundamental conception in PoHtical Economy, it 
has also been commonly held that it should be defined by the oharacteristio of 



982 BIBLIOGRAPHICAL APPENDIX 

possessing " Value," so that it would seem more logical " to begin by attempting 
to get a precise conception of this characteristic." For difficulties attaching 
to "Richesse," as the French equivalent of "Wealth," see Gide, Cours 
d'Economie Politique (1909), p. 47. [By the earlier French economic writers, 
however, the term was used in the plural, as in Turgot's Reflexions sur la 
Formation et la Distribution des Richesses (1770 : trans, by Ashley, 1898).] 

The German language possesses no one inclusive term like " Wealth " ; and 
German economists have long been accustomed to begin with the definition of 
" goods " {Outer) and, in consequence, of " a good " {Gut) — enjoying, in the 
use of the latter term, an advantage not available in current English speech. 
For characteristic examples reference may be made to Wagner, Lehrbuch der 
Politischen Oekonomie, Grundlagen (3rd ed. 1892), I, bk. ii. ch. i. ; or Conrad, 
Grundriss zum Studium der Politischen Oekonomie (6th ed. 1907), § 5. The 
phrases " goods," " economic goods," " an economic good," and so on, have 
of late years made their way into English and stiU more into American economic 
writings; see, for instance, Marshall (as above), and Clark, Essentials of 
Economic Theory (1907), ch. 2 ; and cf. Pierson, Principles of Economics (Eng. 
trans. 1902), pt. i. ch. i. . 

C. — ^The Types of Society {p. 20) 

Mill's brief sketch of the general economic development of humanity is a 
masterly one. But since his time there has been a vast amount of work done, 
especially in Germany, in the field of economic history. The best introduction 
to the subject is now SchmoUer's Grundriss, bk. ii. (occupying the second volume 
of the French trans., Principes). A very suggestive treatment of certain 
aspects of the subject is presented in a brief compass in Biicher, Entstehung der 
Volhswirthschaft (Eng. trans, under the title Industrial Evolution, N. Y. 1901) ; 
which receives some necessary correction and is supplemented in important 
respects by Meyer, Die wirthschaftliche Entwichelung des Alterthums, Vortrag, 
1895, and Die Sklaverei im Alterthum, Vortrag, 1898 ; and by v. Below, Vber 
Theorien der wirthschaftlichen Enfwicklung der Volker, in Historische Zeitschrift, 
Ixxxvi. (N. F. 1.). The best general work in English is Cunningham's Western 
Civilisation in its Economic Aspects ; Ancient Times (1898), Mediceval and 
Modern Times (1930). Seligman, Principles of Economics (1905), part ii. bks. 
ii. and iii., bring3 [together a great many instructive apergus in a short 
compass. 



D. — Productive ai^t> Uitproditctivb Labour {p. 53) 

The distinction was taken from Adam Smith, Wealth of Nations, bk. ii. ch. 
3, who derived the words themselves from the French Physiocrats, though he 
used them in a different sense. It has been criticised by Jevons, Principles, 
ch. xviii., and Cannan, History of the Thories of Production and Distribution 
(1893), ch. i. § 7 ; and it is now but little used. Cf. Marshall, bk. ii. ch. 3. 



E. — The DEFiNiTioisr of Capital (p. 62) 

A good introduction to the large contentious literature on this subject is 
Schmoller, Grundriss, ii. § 182 c (in the French trans. Principes, iii. pp. 409 seq.) ; 
which makes use of the material collected in Bohm-Bawerk, The Positive Theory 
of Capital (Eng. trans. 1891), bk. i. ch. 3. As Wagner, Grundlagen, § 129, has 



BIBLIOGRAPHICAL APPENDIX 983 

pointed out, the conception of capital is twofold — economical and historical 
(cf. Gide, Cours, bk. i. ch. 3) ; the latter aspect was emphasised by LassaUe in 
his proposition that " Capital is a historical category." An account in English 
of the history of the conception wiU be found in Marshall, i. App. E, and in 
Taussig, Wages and Capital (N. Y. 1896), ch. 2. Clark, Distribution of Wealth 
(1902), ch. 9, distinguishes between " Capital " and " Capital Goods." Fisher, 
The Nature of Capital and Income (1906), defines Capital as " a stock of wealth 
existing at a moment of time," — which would seem to identify Capital with 
Wealth generally ; while Gibson, Human Economics (1909), defines Capital 
from the business point of view as " everything in which an individual or 
group has a legal estate and for which there is a buyer's valuation." 



F. — FUITDAMENTAL PROPOSITIONS ON CAPITAL (p. 90) 

For destructive criticism of these propositions see Jevons, Principles, ch. 
xxiv. ; Sidgwick, Principles, bk. i. ch. 5, note ; and Nicholson, Principles, i. 
pp. 98 seq. The first and fourth of them, as stated by INIill, are only other aspects 
of his Wages Fund doctrine, and, according to Marshall, Principles, i. App. J, 
" express his meaning badly." 



G. — Division and Combination of Labour {p, 131) 

This subject, when further examined, widens out into the two far larg^ 
topics of economic differentiation and co-operation, which are themselves to a 
large extent but different aspects of the same process. In this sense it is 
philosophically treated with a great command of the results of recent investi- 
gations, in SchmoUer, Grundriss, 1. §§ 113 seq. (in Fr. trans. Principes, ii. pp. 
248 seq.). 



H. — Large and Small Farming {p. 154) 

On this problem, so far as England is concerned, it has to be remembered : 
(1) that the substitution of large for small farming in the eighteenth and early 
nineteenth centuries was closely associated with the movement for the en- 
closure of the " open " or intermixed fields ; see hereon, Slater, The English 
Peasantry and the Enclosure of Common Fields (1907), and Hasbach, A History 
of the English Agricultural Labourer (Eng. trans. 1908) ; and (2) that the 
position of affairs has been greatly affected since Mil wrote by the shock to 
" cereal farming " caused by the influx of cheap American grain in the eighties : 
hereon see Levy, Entstehung und RucTcgang des landiuirthschafilichen Gross- 
betriebes in England (1904). Materials for an opinion on the economic prospects 
of small farming in England are to be found in Lawes and Gilbert, Allotments 
and Small Holdings, in Journal of the Royal Agric. Soc, vol. iii. 3rd series (1892) : 
in the Report of a Departmental Committee on Small Holdings (1906) ; and 
in Jebb, The Small Holdings of England (1907). They are evidently bound up to 
some extent with the prospects of agricultural co-operation (in the purchase of 
fertihsers, the sale of produce, &c.), of which an account is given in Pratt, The 
Organisation of Agriculture (1905), and in the publications of the Agricultural 
Organisation Society. A general comparison of Large and Small Farming 
following, criticising, and supplementing that of MiU is presented by Nicholson, 
Principles, i. (1893) bk. i. ch. 9- 



984 BIBLIOGRAPHICAL APPENDIX! 

I. — ^Population {p, 162) 

In the writings of no contemporary economist, in Great Britain or abroad, 
does the idea that population is constantly tending to press upon the 
means of subsistence occupy the same conspicuous and primary place as it 
does with Mill. The treatment of the subject by Marshall, Pr indoles, bk. iv. 
chs. 4, 13, and bk. vi. ch. 13, is characteristic of the general present attitude. 
Attention is coming to be directed more and more to those defects in the 
present industrial organisation which create a body of permanently under- 
employed as well as temporarily unemployed, even where the growth of popu- 
lation is evidently not outstripping the means of employment : hereon see 
Beveridge, Unemployment (1909), p. 6 and passim. The understanding of the 
exact teaching of Malthus, and of the differences between the first edition of 
the Essay (1798) and the second (1803), has been facilitated by the publication 
of Parallel Chapters from the First and Second Editions of an Essay on the 
Principle of Population (1895). 



J. — The Law of Diminishing Return {p. 188) 

Careful restatements in general accord with Mill's teaching are to be found 
in Marshall, Principles, i. bk. iv. ch. 3 ; and Nicholson, Principles, bk. i. ch. 10. 
For the results of the Rothamsted experiments, showing that " beyond a 
certain point the increase of crop is not in proportion to the increase in the 
amount of manure applied," see Lawes, Is Higher Farming a Remedy for 
Lower Prices ? Lecture (1879) ; and Hall, The Booh of the Rothamsted Experiments 
0.905). The extent to which the formula of diminishing returns covers the facts of 
agricultural development is discussed by SchmoUer, Grundriss, ii. § 233 {Prin- 
cipes, iv. pp. 427 seq.). But while Mill and the older theoretic writers dis- 
tinguished between the law of diminishing return in agriculture and the fact 
(by some called the law) of increasing return in manufacture (cf. Marshall, 
Principles, bk. iv. ch. 13, § 2), and writers of the historical school tend to mini- 
mise the effect of the law of diminishing return even in agriculture, some more 
recent theoretic writers go in the other direction and declare that the law of 
diminishing retm-n is universal and applies to production of all kinds. For 
the sense in which they use such language, see Clark, Distribution of Wealth, 
p. 208, and Seligman, Principles, § 88. 



K. — Mill's Earlier and Later Writings on Socialism {p, 204) 

Mill's account in the Preface to the 3rd edition of the nature of the altera- 
tions there made, scarcely give an adequate impression of the change of tone 
on his part between 1848 and 1852. The total impression produced by the 
argument of 1848 is that " Socialism " was probably undesirable and imprac- 
ticable. Thus the difficulty of apportioning labour among the members of the 
commimity, which was met in 1852 by an expression of the hope that "human 
intelligence would not be inadequate " to deal with it, had called forth in 1848 
the following remarks : 

" In the existing system of industry these things do adjust themselves 
with some, though but a distant, approach to fairness. If one kind of 
work is harder or more disagreeable than another, or requires a longer 
practice, it is better paid, simply because there are fewer competitors for 
it ; and an individual generally finds that he can earn most by doing the 
thing which he is fittest for. I admit that this self-adjusting machinery 



BIBLIOGRAPHICAL APPENDIX W 

does not toucli some of the grossest of the existing inequalities of remunera- 
tion, and in particular the unjust advantage possessed by almost the 
commonest mental over almost the hardest and most disagreeable bodily 
labour. Employments which require any kind of technical education, 
however simple, have hitherto been the subject of a real monopoly as 
against the mass. But as popular instruction advances, this monopoly is 
already becoming less complete, and every increase of prudence and foresight 
among the people encroaches upon it more and more." 

And the argument concluded thus : 

" I believe that the condition of the operatives in a well-regulated manu- 
factory, with a great reduction of the hours of labour and a considerable 
variety of the kmd of it, is very like what the condition of all would be in a 
Socialist community. I believe that the majority would not exert them- 
selves for any thing beyond this, and that unless they did, nobody else would ; 
and that on this basis human life would settle itseK into one invariable round. 
But to maintain even this state, the limitation of the propagative powers 
of the community must be as much a matter of public regulation as every- 
thing else ; since under the supposed arrangements prudential restraint 
would no longer exist. Now, if we suppose an equal degree of regulation 
to take place under the present system, either compulsorily, or, what would 
be so much preferable, voluntarily ; a condition at least equal to what the 
Socialist system offers to all would fall to the lot of the least fortunate, by 
the mere action of the competitive principle. Whatever of pecuniary 
means or freedom of action any one obtained beyond this, would be so 
much to be counted in favour of the competitive system." 

It is true that, in the next section, he went on to say : 

" These arguments, to my mind conclusive against Communism, are 
not apphcable to St. Simonism ... St. Simonism does not contemplate 
an equal, but an unequal, division of the produce." 

But he judged the assumption on which it rested " almost too chimerical 

to be reasoned against " ; and began the next section thus : 

" There has never been imagined any mode of distributing the produce 
of industry, so well adapted to the requirements of human nature on the 
whole, as that of letting the share of each individual (not in a state of bodily 
or mental incapacity) depend in the main on that individual's own energies 
and exertions, and on such furtherance as may be obtained from the volun- 
tary good offices of others. It is not the subversion of the system of 
individual property that should be aimed at, but the improvement of it." 

In the 3rd edition, it should be noted, the treatment of the subject is affected 

not only by a modification of personal opinion, but also by the insertion, which 

had taken place in the 2nd edition, of the account of Fourierism. 

In 1869 Mill formed the design of writing a book on Socialism ; and after 
his death the first rough drafts of the work were published by his step-daughter, 
IVIiss Helen Taylor, in the Fortnightly Review for February, March, and April 
1879. These articles indicate a reversion on Mill's part to an attitude re- 
sembling more closely perhaps his state of mind in 1848 than that in 1852. 
It must be remembered that his criticisms bore primarily upon the SociaKst 
literature of his own time (1869). •* His treatment of the subject was so carefully 
balanced that there is a certain risk of giving an unfair impression of the 
general effect of the argument by the selection of a few passages. The follow- 
ing passages, taken in conjunction with the chapters in the Principles, will, 
however, indicate with sufficient clearness his general point of view. 

After an Introduction on the importance of the subject, IVIill begins by 
setting forth at length the Socialist objections to the present order of society, 
and by recognising the large element of truth in them. 

" But the strongest case is susceptible of exaggeration ; and it will have 



986 BIBLIOGRAPHICAL APPENDIX 

been evident to many readers, even from the passages I have quoted, that 
such exaggeration is not wanting in the representations of the ablest and 
most candid Socialists. Though much of their allegations is unanswerable, 
not a little is the result of errors in political economy ; by which, let me say 
once for all, I do not mean the rejection of any practical rules of poUcy 
which have been laid down by political economists : I mean ignorance of 
economic facts, and of the causes by which the economic phenomena of 
society as it is, are actually determined. 

" In the first place, it is unhappily true that the wages of ordinary labour 
in all the countries of Europe are wretchedly insufficient to supply the 
physical and moral necessities of the population in any tolerable measure. 
But when it is further alleged that even this insufficient remuneration has 
a tendency to diminish ; that there is, in the words of M. Louis Blanc, une 
haisse continue des salaires ; the assertion is in opposition to all accurate 
information, and to many notorious facts. It has yet to be proved that 
there is any country in the civilised world where the ordinary wages of 
labour, estimated either in money or in articles of consumption, are declining; 
while in many they are, on the whole, on the increase; and an increase 
which is becoming not slower, but more rapid." 

The following passage supplements the chapter in the Principles on the 

theory of Profit : 

" Another point on which there is much misapprehension on the part of 
Socialists, as well as of Trades Unionists and other partisans of Labour 
against Capital, relates to the proportions in which the produce of the 
country is really shared, and the amount of what is actually diverted from 
those who produce it, to enrich other persons. . . . With respect to capital 
employed in business, there is in the popular notions a great deal of illusion. 
When, for instance, a capitalist invests £20,000 in his business and draws from 
it an income of suppose £2000 a year, the common impression is as if he 
was the beneficial owner both of the £20,000 and the £2000, while the labourers 
own nothing but their wages. The truth, however, is that ho only obtains 
the two thousand pounds on condition of applying no part of the £20,000 
to his own use. He has the legal control over it, and might squander it if 
he chose, but if he did he would not have the £2000 a year also. As long 
as ho derives an income from his capital he has not the option of with- 
holding it from the use of others. As much of his invested capital as 
consists of buildings, machinery and other instruments of production, is 
applied to production and is not applicable to the support or enjoyment of 
any one. What is so applicable (including what is laid out in keeping up 
or renewing the buildings and instruments) is paid away to labourers, 
forming their remuneration and their share in the division of the produce. 
For all personal purposes they have the capital and he has but the profits, 
which it only yields to him on condition that the capital itself is employed 
in satisfying, not his own wants, but those of labourers. The proportion 
which the profits of capital usually bear to the capital itself (or rather to 
the circulating portion of it) is the ratio which the capitalist's share of the 
produce bears to the aggregate share of the labourers. Even as his own 
share a small part only belongs to him as the owner of capital. The portion 
of the produce which falls to capital merely as capital is measured by the 
interest of money, since that is all that the owner of capital obtains when 
he contributes nothing to production except the capital itself. Now the 
interest of capital in the public funds, which are considered to be the best 
security, is at the present prices (which have not varied much for many 
years) about three and one-third per cent. Even in this investment there 
is some little risk — risk of repudiation, risk of being obliged to sell out at a 
low price in some commercial crisis. 

" Estimating these risks at one-third per cent., the remaining three per 



cent, may be considered as the remuneration of capital, apart from insurance 
against loss. On the security of a mortgage four per cent, is generally 
obtained, but in this transaction there are considerably greater risks — the 
uncertainty of titles to land under our bad system of law ; the chance of 
having to reaHse the security at a great cost in law charges ; and liability 
to delay in the receipt of the interest, even when the principal is safe. 
When mere money independently of exertion yields a larger income, as it 
sometimes does, for example, by shares in railway or other companies, the 
surplus is hardly ever an equivalent for the risk of losing the whole, or part, 
of the capital by mismanagement, as in the case of the Brighton Railway, 
the dividend of which, after having been six per cent, per annum, sunk to 
from nothing to one and one-half per cent., and shares which had been 
bought at 120 could not be sold for more than 43. ... Of the profits, 
therefore, which a manufacturer or other person in business obtains from 
his capital no more than about three per cent, can be set down to the 
capital itself. If he were able and willing to give up the whole of this to 
his labourers, who already share among them the whole of his capital as it 
is annually reproduced from year to year, the addition to their weekly 
wages would be inconsiderable. Of what he obtains beyond three per cent. 
a great part is insurance against the manifold losses he is exposed to, and 
cannot safely be applied to his own use, but requires to be kept in reserve 
to cover those losses when they occur. The remainder is properly the 
remuneration of his skill and industry — the wages of his labour of super- 
intendence. No doubt if he is very successful in business these wages of 
his are extremely Hberal, and quite out of proportion to what the same 
skill and industry would command if offered for hire. But on the other 
hand he runs a worse risk than that of being out of employment : that of 
doing the work without earning anything by it, of having the labour and 
anxiety without the wages. I do not say that the drawbacks balance the 
privileges, or that he derives no advantage from the position that makes 
him a capitalist and employer of labour, instead of a skilled superintendent 
letting out his service to others ; but the amount of his advantage must not 
be estimated by the great prizes alone. If we subtract from the gains of 
some the losses of others and deduct from the balance a fair compensation 
for the anxiety, skill and labour of both, grounded on the market price of 
skilled superintendence, what remains will be, no doubt, considerable, but 
yet, when compared to the entire capital of the country, annually reproduced 
and dispensed in wages, it is very much smaller than it appears to the 
popular imagination ; and were the whole of it added to the share of the 
labourers it would make a less addition to their share than would be made 
by any important invention in machinery, or by the suppression of un- 
necessary distributers and other ' parasites of industry.' . , , 

" It seemed desirable to begin the discussion of the Socialist question by 

these remarks in abatement of Sociahst exaggerations, in order that the 

true issues between Socialism and the existing state of society might be 

correctly conceived. The present system is not, as many Socialists beheve, 

hurrying us into a state of general indigence and slavery from which only 

SociaHsm can save us. The evils and injustices suffered under the present 

system are great, but they are not increasing ; on the contrary, the general 

tendency is toward their slow diminution." 

Mill then opens his statement of the objections to Socialism with the following 

classification, which illustrates the extent to which Socialist propaganda has 

changed its character since 1869 : 

" Among those who call themselves Socialists, two kinds of persons may 
be distinguished. There are, in the first place, those whose plans for a new 
order of society — ^in which private property and individual competition 
are to be superseded and other motives to action substituted — are on the 



scale of a village community or township, and would be applied to an entire 
country by the multiplication of such self-acting units ; of this character 
are the systems of Owen and Fourier, and the more thoughtful and philo- 
sophic Socialists generally. The other class, who are more a product of 
the continent than of Great Britain and may be called the revolutionary 
Socialists, propose to themselves a much bolder stroke. Their scheme is 
the management of the whole productive resources of the country by one 
central authority, the general government." 
Remarking that : 

" the peculiarities, however, of the revolutionary form of Socialism will be 
most conveniently examined after the considerations common to both the 
forms have been duly weighed," 
he begins by pointing out that : 

" the distinctive feature of Socialism is not that all things are in common, 
but that production is only carried on upon the common account, and that 
the instruments of production are held as common property." 
Accordingly : 

" The question to be considered is, whether this joint management is 
likely to be as efficient and successful as the managements of private industry 
by private capital. And this question has to be considered in a double 
aspect : the efficiency of the directing mind, or minds, and that of the 
simple workpeople." 
He discusses this, first in relation to the form of Socialism which he calls 

" simple communism, i.e. equal division of the produce among all the 

sharers, or, according to M. Louis Blanc's still higher standard of justice, 

apportionment of it according to difference of need, but without making any 

difference of reward according to the nature of the duty nor according to 

the supposed merits or services of the individual," 

with the conclusion that its success would depend upon a moral education for 

which mankind could only be effectually trained by communistic association : 

" It is for Communism, then, to prove, by practical experiment, its 

power of giving this training. Experiments alone can show whether there 

is as yet in any portion of the population a sufficiently high level of moral 

cultivation to make Commimism succeed, and to give the next generation 

among themselves the education necessary to keep up that high level 

permanently. If Communist associations show that they can be durable 

and prosperous, they will multiply, and will probably be adopted by 

successive portions of the population of the more advanced countries as 

they become morally fitted for that mode of life." 

And, going on then to " those other forms of Socialism which recognise the 

difficulties of Communism and contrive means to surmount them," oi which the 

principal was Fourierism, he gives reasons for the opinion that, for them, " practi- 

cal trial " is no less necessary. He then goes on to the other main division : 

" The various schemes for managing the productive resources of the 

country by public instead of private agency . . . are at present workable 

only by the elite of mankind, and have yet to prove their power of training 

mankind at large to the state of improvement which they presuppose. 

Far more, of course, may this be said of the more ambitious plan which aims 

at taking possession of the whole land and capital of the country, and 

beginning at once to administer it on the public account. Apart from all 

consideration of injustice to the present possessors, the very idea of con- 

• ducting the whole industry of a country by direction from a single centre 

is so obviously chimerical that nobody ventures to propose any mode in 

which it should be done." 

Mill's argument with regard to the second or " revolutionary " type of 

Socialism is accordingly based upon the difficulty of " the problem of manaD^e- 

ment." And his final conclusion is thus expressed ; 



iiliiMOUKAFHiCAL AJbTEiNDiX 989 

" The preceding considerations appear sufficient to show that an 
entire renovation of the social fabric, such as is contemplated by Socialism, 
establishing the economic constitution of society upon an entirely new 
basis, other than that of private property and competition, however valu- 
able as an ideal, and even as a prophecy of ultimate possibilities, is not 
available as a present resource, since it requires from those who are 
to carry on the new order of things qualities both moral and intellectual, 
which require to be tested in all, and to be created in most ; and this cannot 
be done by an Act of Parliament, but must be, on the most favourable 
supposition, a work of considerable time. For a long period to come the 
principle of individual property will be in possession of the field ; and 
even if in any country a popular movement were to place Socialists at the 
head of a revolutionary government, in however many ways they may 
violate private property the institution itself would survive, and would 
either be accepted by them or brought back by their expulsion, for the plain 
reason that people will not lose their hold of what is at present their sole 
rehance for subsistence and security until a substitute for it has been got 
into working order. Even those, if any, who have shared among themselves 
what was the property of others would desire to keep what they had 
acquired, and to give back to property in the new hands the sacredness 
which they had not recognised in the old. 

" But though, for these reasons, individual property has presumably a 
long term before it, if only of provisional existence, we are not, therefore, 
to conclude that it must exist during that whole term unmodified, Dr that all 
the rights now regarded as appertaining to property belong to it inherently, 
and must endure while it endures. On the contrary, it is both the duty 
and the interest of those who derive the most direct benefit from the laws 
of property to give impartial consideration to all proposals for rendering 
those laws in any way less onerous to the majority. . . . 

" One of the mistakes oftenest oommitted, and which are the source of 
the greatest practical errors in human affairs, is that of supposing that the 
same name always stands for the same aggregation of ideas. No word 
has been the subject of more of this kind of misunderstanding than the 
word property. It denotes, in every state of society the larg st power of 
exclusive use or exclusive control over things (and sometimes, unfortunately, 
over persons) which the law accords, or which oaatom in that state of sooiety 
recognises ; but these powers of exclusive use and control are very various 
and differ greatly in different countries and in different states of society," 
And, after some historical illustrations of this proposition, he concludes : 

"When, therefore, it is maintained, rightly or wrongly, that some change 
or modification in the powers exercised over things by the persons legally 
recognised as their proprietors would be beneficial to the public and conducive 
to the general improvement, it is no good answer to this merely to say 
that the supposed change conflicts with the idea of property. The idea of 
property is not some one thing identical throughout history and incapable of 
alteration, but is variable like all other creations of the human mind ; at 
any given time it is a brief expression denoting the rights over things 
conferred by the law or custom of some given society at that time ; but 
neither on this point nor on any other has the law and custom of a given time 
and place a claim to be stereotyped for ever. A proposed reform in laws 
or customs is not necessarily objectionable because its adoption would 
imply, not the adaptation of all human affairs to the existing idea of pro- 
perty, but the adaptation of the existing ideas of property to the growth 
and improvement of human affairs. This is said without prejudice to the 
equitable claim of proprietors to be compensated by the state for such 
legal rights of a proprietary nature as they mav be dispossessed of for the 
public advantage." 



990 BIBLIOGRAPHICAL APPENDIX 

L. — ^The Lateb History of Socialism [p, 217) ^ 

It will be observed that the socialistic writings commented on by Mill 
were all of French origin and were none of them subsequent to 1869, the date 
of Mill's articles on Socialism referred to under Appendix K. The Socialism 
which has been of most influence in later years has been of German origin, and 
must be studied in the writings of its chief exponents, Karl Marx, Ferdinand 
Lassalle, Rodbertus, and Friedrich Engels. The most notable in this connexion 
of those of Lassalle were Arbeiierprogramm (1862 : Eng. trans, as The Working 
Man^s Programme), and Herr Bastiat Schulze von Delitzsch, der bJconomische 
Julian {1864 : French trans, by Malon as Capital et Travail) ; of Rodbertus, 
Zur Beleuchtung der Sozialen Frage (1875 ; containing a new edition of Soziale 
Briefe an v. Kirchmann, 1850), and Die Handelskrisen (1858 : Eng. trans, as 
Overproduction and Crises, 1898) ; and of Engels (in conjunction with Marx), 
Manifest der Kommunistischen Partei (1848 : Eng. trans, revised by Engels 
1888), and, alone. Die Entwickelung der Sozialismus von der Utopie zur Wissenr 
schaft (1882 : Eng. trans, as Socialism, Utopian and Scientific), and Introduc- 
tions to Marx's Capital. But of most importance for the theoretic formulation 
of Socialism have been the writings of Marx (1818-1883) : Zur Kritik der poli- 
tischen Oekonomie (1859), and, above all, Das Kapital (i. 1867 : Eng. trans. 
Capital, 1887 ; ii. 1893 ; iii. 1894. An English abstract of the 1st vol. by 
Aveling appeared in 1891 as The Student's Marx). Fundamental ideas in the 
writings of Marx were those of Surplus- Value, of Class War, of the Concentration 
of Wealth, and of the Materialist Interpretation of History. The extent to 
which these particular teachings have been abandoned by those younger 
German socialists known as " Revisionists " may be gathered from Bernstein, 
Die Voraussetzungen der Sozialismus (1899 : Eng. trans, as Evolutionary 
Socialism, 1909). 

Among useful books on the history of Socialism in general, and of German 
socialism in particular, may be mentioned : Laveleye, Le Socialisme Con- 
temporain (1881 : Eng. trans. 1885) ; Ely, French and German Socialism 
(1885) ; Gonner, The Social Philosophy of Rodbertus (1900) ; Rae, Contemporary 
Socialism (3rd ed. 1901); Brooks, The Social Unrest (1903); Kirkup, A 
History of Socialism (3rd ed. 1906) ; Ensor, Modern Socialism (2nd ed. 1907), — 
a most useful collection of typical documents and speeches from all the 
leading countries of Europe ; and Herkner, Die Arbeiterfrage (5th ed. 1908). 

English socialism has pursued in some respects a line of development of its 
own ; and it may be studied in Fabian Essays in Socialism (1889 : Reprint, 
with a significant preface, 1908) ; various Fabian Tracts, especially Shaw, 
The Fabian Society (1892) ; Macdonald, Socialism and Society (1905) ; Wells, New 
Worlds for Old (1908) ; and Villiers, The Socialist Movement in England (1908). 

Two popular works which have had a very large circulation are, in America, 
Bellamy, Looking Backward (1890), and in England, Blatchford, Merrie Eng- 
land (1894). 

For French socialism see Jaures, Studies in Socialism (Eng. trans. 1906) ; 
Lavy, UOeuvre de Millerand (1902); and Millerand, Travail et Travailleurs 
(1908); for the recent developments of "Revolutionary Syndicalism," 
Gide and Rist, Histoire des Doctrines Economiques (1909); and for Belgian 
socialism, Destree and Vandervelde, Le Socialisme en Belgique (1903). 

Among criticisms of socialism in various forms and aspects may be singled 
out Herbert Spencer, The Man v. The State (1884); Courtney, The DifjiciUties 
of Socialism, in Econ. Journal, i. (1891); Schaffle, The Impossibility of 
Social Democracy (Eng. trans. 1892); Richter, Pictures of the Socialistic 
Future (Eng. trans. 1893); Devas, Political Economy (2nd ed. 1901), bk. ii. 
ch. 7; Strachey, Problems and Perils of Socialism (1908); and Mallock, A 
Critical Examination of Socialism (1909). An individualist position is ably 



BIBLIOGRAPHICAL APPENDIX 991 

maintained in the writings of Helen Bosanquet, especially The Strength of the 
People (1902). 

M. — Indian Tenubes {p. 328) 

The whole subject must now be studied in the works of the late B. H. 
Baden- Powell, and especially in the three massive volumes The Land Systems 
of British India (1892), and the brief text-book based upon that work, Land 
Revenue in British India (1894). See also his Indian Village Community (1896), 
and the more popular Village Communities in India (1899) ; and on the 
special subject of the Origin of Zamindari Estates in Bengal, his article under 
that title in the (Harvard) Quarterly Journal of Economics, xi. (Oct. 1896). 



"N. — Irish Agearian Development [p. 342) 

The Irish Land Act of 1870 marked the beginning of an attempt to solve 
the agrarian problem in accordance with the principle popularly described as 
" dual ownership," by giving the tenants a right to " compensation for disturb- 
ance." The great Land Act of 1881 carried the process much further by 
accepting the proposals known as " the three F's " (fair rents, free sale of 
tenants' interests, and fixed tenure), and establishing a Land Court to fix 
"judicial rents " for a term of years. By the Land Act of 1903, however, a new 
departure was made ; and machinery was provided for the voluntary trans- 
ference to the tenants of the land still in the hands of the landlords, on terms 
attractive to both parties. This measure and the subsequent amending and 
supplementary Acts will probably, in no long time, bring about the estabhsh- 
ment of a system of peasant proprietorship over a great part of Ireland. It 
should be added that there has of recent years been a rapid growth among Irish 
farmers of various forms of co-operation. For a brief account of the Act of 1881 
and of its relation to contemporary Nationalism, see Low and Sanders, Political 
History of England during the reign of Victoria (1907). The least biassed accounts 
of Irish agrarian history during the last forty years are perhaps to be found in 
a brief work by a German economist. Dr. Bonn, Modern Ireland and her Agrarian 
Problem (Eng. trans. 1906), and in Bastable's articles in the (Harvard) Quarterly 
Journal of Economics, xviii. (Nov. 1903), and in the Economic Journal, xix. 
(March 1909). On the movement towards co-operation among farmers, see 
Plunkett, Ireland in the New Century (1903), part ii. The details of the history 
are best looked for in the reports of Royal Commissions and similar documents, 
such as the Report of the Royal Commission of 1880-1, and of the Royal Commis- 
sion of 1886-7, the Report of the Select Committee of the House of Commons of 
1894 (" Morley's Committee"), and the Report of the Royal Commission of 
1897-8 (" Fry's Commission "), together with a Repeat by Mr. W. F. Bailey, 
Legal Assistant- Commissioner, of an Inquiry into the Present Condition of Tenant 
Purchasers (1903), the Reports of the Irish Agricultural Organisation Society (from 
1895), and of the Irish Department of Agriculture and Technical Instruction 
(from 1901). See also Coyne, Ireland, Industrial and Commercial (pub. by 
Irish Dep. of Agriculture, 1902), and for the text of the Acts, Cherry and Barton, 
Irish Land Law. 

O. — The Wages Fund Doctrine [p. 344) 

This doctrine was formally abandoned by Mill himself in the course of a 
review of Thornton's Labour in the Fortnightly Review for May 1869, reprinted 
in his Dissertations and Discussions, iv. The central passages of this aiticle 
are as follows {Dissertations, iv. pp. 42 seq.) : 



992 BIBLIOGRAPHICAL APPENDIX 

" It will be said that . . . supply and demand do entirely govern the 
price obtained for labour. The demand for labour consists of the whole 
circulating capital of the country, including what is paid in wages for 
unproductive labour. The supply is the whole labouring population. If 
the supply is in excess of what the capital can at present employ, wages 
must fall. If the labourers are all employed, and there is a surplus of 
capital still unused, wages will rise. This series of deductions is generally 
received as incontrovertible. They are found, I presume, in every syste- 
matic treatise on political economy, my own certainly included. I must 
plead guilty to having, along with the world in general, accepted the theory 
without the qualifications and limitations necessary to make it admissible. 

"The theory rests on what may be called the doctrine of the 
wages fund. There is supposed to be, at any given instant, a sum of 
wealth, which is unconditionally devoted to the payment of wages of 
labour. This sum is not regarded as unalterable, for it is augmented by 
saving, and increases with the progress of wealth ; but it is reasoned upon 
as at any given moment a predetermined amount. More than that amount 
it is assumed that the wages-receiving class cannot possibly divide among 
them ; that amount, and no less, they cannot but obtain. So that, the 
sum to be divided being fixed, the wages of each depend solely on the 
divisor, the number of participants. . . . 

" But is there such a thing as a wages-fund, in the sense here implied T 
Exists there any fixed amount which, and neither more nor less than which, 
is destined to be expended in wages ? 

" Of course there is an impassable limit to the amount which can be so 
expended ; it cannot exceed the aggregate means of the employing classes. 
It cannot come up to those means ; for the employers have also to main- 
tain themselves and their families. But, short of this limit, it is not, in 
any sense of the word, a fixed amount. 

" In the common theory, the order of ideas is this : The capitalist's 
pecuniary means consist of two parts — his capital, and his profits or income. 
His capital is what he starts with at the beginning of the year, or when he 
commences some round of business operations; his income he does nos 
receive until the end of the year, or until the round of operations it 
completed. His capital, except such part as is fixed in buildings and 
machinery, or laid out in materials, is what he has got to pay wages with. 
He cannot pay them out of his income, for he has not yet received it. When 
he does receive it, he may lay by a portion to add to his capital, and as such 
it will become part of next year's wages-fund, but has nothing to do with 
this year's. 

" This distinction, however, between the relation of the capitalist to his 
capital, and his relation to his income is wholly imaginary. . He starts at 
the commencement with the whole of his accumulated means, all of which 
is potentially capital : and out of this he advances his personal and family 
expenses, exactly as he advances the wages of his labourers. ... If we 
choose to call the whole of what he possesses applicable to the payment of 
wages, the wages-fund, that fund is co-extensive with the whole proceeds of 
his business, after keeping up his machinery, buildings and materials, and 
feeding his family ; and it is expended jointly upon himself and his labourers. 
The less he expends on the one, the more may be expended on the other, and 
vice versd. The price of labour, instead of being determined by the division 
of the proceeds between the employer and the labourers, determines it. If 
he gets his labour cheaper, he can afford to spend more upon himself. If he 
has to pay more for labour, the additional payment comes out of his own 
income ; perhaps from the part which he would have saved and added to 
capital, thus anticipating his voluntary economy by a compulsory one ; 
perhaps from what he would have expended on his private wants or pleasures. 



BIBLIOGRAPHICAL APPENDIX 



993 



There is no law of nature making it inherently impossible for wages to rise 
to the point of absorbing not only the funds which he had intended to 
devote to carrying on his business, but the whole of what he allows for his 
private expenses, beyond the necessaries of life. The real limit to the rise 
is the practical consideration, how much would ruin him or drive him to 
abandon the business : not the inexorable Kmits of the wages -fund. 

" In short, there is abstractedly available for the payment of wages, 
before an absolute limit is reached, not only the employer's capital, but 
the whole of what dan possibly be retrenched from his personal expenditure : 
and the law of wages, on the side of demand, amounts only to the obvious 
proposition, that the employers cannot pay away in wages what they have 
not got. On the side of supply, the law as laid down by economists 
remains intact. The more numerous the competitors for employment, 
the lower, cceteris paribus, will wages be. ... i 

" But though the population principle and its consequences are in no 

way touched by anytMng that Mr. Thornton has advanced, in another of 

its bearings the labour question, considered as one of mere economics, 

assumes a materially changed aspect. The doctrine hitherto taught by all 

or most economists (including myself), which denied it to be possible 

that trade combinations can raise wages, or which limited their operations 

in that respect to the somewhat earlier attainment of a rise which the 

competition of the market would have produced without them, — this doctrine 

is deprived of its scientific foundation, and must be thrown aside; The 

right and wrong of the proceedings of Trade Unions becomes a common 

question of prudence and social duty, not one which is peremptorily 

decided by unbending necessities of political economy." 

In spite of the remonstrances of Cairnes, and his attempt to restate the 

Wages Fund doctrine in a more satisfactory form, in his Leading Principles, 

part ii. ch. 1, it may be said to be abandoned now by all economists, at any rate 

in the form in which it was stated by Mill. For a criticism of Mill's retractation, 

and a statement of a sense in which it may still be allowable to speak of a 

Wages Fund, see Taussig, Wages and Capital, an Examination of the Wages 

Fund Doctrine (N. Y. 1896), especially part ii. ch. 11. And see Sidgwick, 

Principles, bk. ii. ch. 8, § 2 ; Marshall, Principles, i. App. J : The Doctrine of 

the Wages Fund ; and Nicholson, Principles, bk. ii. ch. 10, § 8. 



P.— Thes Movement of Population (p. 360) 

The rate of growth of the population of the several parts of the United 
Kingdom is shown by the following table: 







Rates of decennial increase 




Population. 


or decrease on preceding 


Year. 




census. 










•o 




73 


^ 




England. 


Wales. 


Scotland. 


Ireland. 


1? 


4) ^~\ 


8 

CQ 


Irelanc 


1851 


16,926,348 


1,001,261 


2,888,742 


6,552,385 


12-8 


10-5 


10-2 


-1 
1 
19-8 


1861 


18,958,103 


1,108,121 


3,062,294 


5,798,967 


12-0 


10-7 


6-0 


11-5 


1871 


21,498,642 


1,213,624 


3,360,018 


5,412,377 


13-4 


9-5 


9-7 


6-7 


1881 


24,617,266 


1,357,173 


3,735,573 


5,174,836 


14-5 


11-8 


11-2 


4-4 


1891 


27,487,525 


1,515,000 


4,025,647 


4,704,750 


11-7 


11-6 


7-8 


9-1 


1901 


30,811,420 


1,716,423 


4,472,103 


4,458,775 


12-1 


13-3 


11-1 


5-2 



2 K 



994 



BIBLIOGRAPHICAL APPENDIX 



The factors in the increase of population are evidently (1) migration, 
(2) the " natural increase " of population, i.e. the excess of births over deaths. 
The annual natural increase has fallen in England and Wales from 14*5 per 
1000 of the population for the period 1876-1880, to 12-1 in 1901-1905, in 
consequence of the fact that though the death-rate fell from 20*8 to 16 
per thousand, the birth-rate fell from 35-3 to 28-1. The birth-rate in 
England and Wales, for the period since the Civil Registration Act of 1837, 
reached its maximum in the period 1870-1876, and has since shown a material 
decline. 

The extent of this decline is shown in the next table : 

Birth-rates (England and Wales). 



Period. 


Average Annual Crude 

Birth-rate per 1000 of 

Total Population. 


Average Annual Corrected 

Birth-rate per 1000 of 

Female Population 

aged 15-45 years. 


1876-1880 
1881-1885 
1886-1890 
1891-1895 
1896-1900 
1901-1905 

1906 . . 

1907 . . 










35-3 
33-5 
31-4 
30-5 
29-3 
28-1 
27-1 
26-3 


153-3 
144-3 
133-4 
126-8 
118-8 
112-5 
108-3 
105-1 



As regards the decline in the birth-rate generally, the Registrar-General 
observes : 

" There are sufficient grounds for stating that during the past 30 
years approximately 14 per cent, of the decline in the birth-rate 
(based on the proportion of births to the female population aged 15-45 
years) is due to the decrease in the proportion of married women in the 
female population of conceptive ages, and that over 7 per cent, is due to 
the decrease of illegitimacy. With regard to the remaining 79 per cent, 
of the decrease, although some of the reduced fertility may be ascribed to 
changes in the age constitution of married women, there can be little doubt 
that much of it is due to deliberate restriction of child-bearing." 
The decline in the birth-rate, whatever may be its cause, is a feature common 
to the birth statistics of most European countries. The statistics may be 
studied in the General Eeport on the Census of 1901, and in the Annual Reports 
of the Registrar -General. The figures are conveniently collected in the Blue- 
book, Public Health and Social Conditions, prepared by the Local Government 
Board (1909). The most detailed statistical analysis of the facta is to be 
found in a paper by Newsholme and Stevenson, and another by Yule, in the 
Journal of the Royal Statistical Society (March 1906). 



Q.— Profits (p. 421) 

The most powerful impulse to fresh discussion of the nature of profits was 
given by the late General Walker, in the emphasis laid by him on " the function 
of the entrepreneur,'''' and his view that " profits are a species of the same genus 
as rent," and " do not form a part of the price of manufactured products " ; 



BIBLIOGRAPHICAL APPENDIX 995 

sea his Wages Question (1876), ch. 14, and Political Economy (1883). In this 
discussion it has become usual to distinguish more sharply than the earlier 
writers between Interest and " pure " or " net " Profits ; and there is now a 
large literature on both these topics. As to Interest, much influence has been 
exerted by the doctrine of the Austrian writer, Bohm-Bawerk, which explains 
interest as " a premium on present as against future things " ; see Bohm- 
Bawerk, Capital and Interest (Eng. trans. 1890), and Positive Theory of Capital 
(Eng. trans. 1891). Of the writings this has called forth it may be sufficient 
to refer to Pierson, Principles of Economics (Eng. trans. 1902), part i. ch. 4, § 5, 
and to Cassel, The Nature and Necessity of Interest (1903). 

On Profit, recent writings are largely influenced by the conceptions of 
(1) a " quasi-rent," (2) " the marginal entrepreneur," and (3) " long and short 
periods." The present state of the discussion may be seen in Marshall, 
Principles^ bk. vi. chs. 6-8 ; Clark, Essentials of Economic Theory (1907), pp. 
117 seq. ; Seager, Introduction to Economics (3rd ed. 1906), ch. 10; and in 
Conrad's Grundriss, § 84, and Gide's Cours, pp. 674 seq. The treatment of the 
subject by SchmoUer, Grundriss, §§ 231-2 {Principes, vol. iv.), wiU be found 
illuminating. The " tendency " of profits and wages to an equahty has been 
commented upon frequently by Cliffe Leslie, as in his articles on The Political 
Economy of Adam Smith and On the Philosophical Method of Political Economy, 
reprinted in his Essays .(1879). 



R.— Rent {p. 434) 

Criticisms of the Ricardian doctrine of rent, or of its formulation, are to be 
found in Sidgwick, Principles, bk. ii. ch. 8, and in Nicholson, Principles, vol. i. 
bk. ii. ch. 14 ; and it is restated in Pierson, Principles, pt. i. ch. 2, and in 
Marshall, Principles, bk. vi. ch. 9. 



S.' — ^The Theory of Value (p. 482) 

It is on this subject — as to which Mill remarked, in 1848, that " happily 
there is nothing in the laws of value which remains for the present or any 
future writer to clear up ; the theory of the subject is complete " (p. 436) — that 
theoretic discussion has mainly turned during the last four decades, owing chiefly 
to the writings of Jevons, of Menger and the other representatives of the Austrian 
school, and of Clark and his American followers. The characteristic of all 
these writers is to approach the problem from the side of demand, and to find 
the key to value in Final or Marginal Utility (Grenznutz). The best intro- 
duction to the discussion is through Jevons, Theory of Political Economy (1871 ; 
2nd ed. revised, 1879), chs. 3 and 4 ; and through Bonar's article on The Austrian 
Economists in the (Harvard) Quarterly Journal of Economics, iii. (Oct. 1888) ; 
and Smart, An Introduction to the Theory of Value on the lines of Menger, Wieser 
and Bohm-Bawerk (1891). Wieser's Natural Value (Eng. trans. 1893) attempts 
to apply the doctrine to the whole problem of Distribution. For the present 
state of the discussion see Marshall, Principles, i. bk. v. ; Clark, Essentials, 
chs. 6 and 7 ; and SchmoUer, Grundriss, §§ 171-2 (in French, Principes, vol. iii.). 

Mill's doctrine of Cost of Production was attacked by Cairnes in his Some 

Leading Principles of Political Economy newly expounded (1874), soon after 

. Mill's death. See hereon Marshall in Fortnightly Review (April 1876), and 

Principles, book v. ch. 3, § 2. Cairnes contributed an important consideration 

to the discussion by the emphasis which he laid on " Non-competing Groups." 



996 BIBLIOGRAPHICAL APPENDIX 

T. — The Value op Money {p. 506) 

For other expositions of " the Quantity Theory of Prices," see Walker, 
Money (1878), chs. 3-8 ; and Nicholson, Money and Monetary Problems (1888 ; 
4th ed. 1897), chs. 5-7. For a criticism, see Scott, Money and Banking (N. Y. 
1903), ch. 4. An attempt to test the doctrine statistically is made by Kemmerer, 
Money and Credit Instruments in their relation to General Prices (N. Y. 1907). 
For the sense of " money " in modern business, see Withers, The Meaning of 
Money (1909). 



U. — Bimetallism {p. 510) 

For vhe main points of the controversy on this subject, which had hardly 
begun when Mill wrote in 1848, see Jevons, Money (1875), ch. 12 (with his 
acceptance of the view of the " compensatory action " of a double standard 
system) ; Gibbs and Grenfell, The Bimetallic Controversy (1886), — a. collection 
of pamphlets, speeches, &c., on both sides ; Nicholson, Money and Monetary 
Problems; Walker, International Bimetallism (1896); Darwin, Bimetallism 
(1898) ; and Carlile, The Evolution of Modern Money (1901). An extreme 
monometallist position is represented in Giffen, Case against Bimetallism 
(1892). 

V. — Internatiokal Values {p. 606) 

The Ricardian doctrine, followed and carried further by Mill, has hitherto 
remained the almost exclusive possession of English economists. It has been 
expounded by Cairnes, Leading Principles, part iii. ch. 3, and by Bastable, 
Theory of International Trade (2nd ed. 1897). It has been objected to from 
two diametrically opposite points of view. Transferability of capital and 
labour, it has been argued, is true of international trade as well as of domestic, 
so that no separate theory is necessary for the determination of international 
values ; e.g. Hobson, International Trade (1904). On the other hand it has been 
asserted that such a transferability is true neither of domestic nor of inter- 
national trade, and that therefore it is necessary to reject both the Ricardian 
doctrine of home values and the Ricardian doctrine of international values ; 
e.g. CHffe Leslie, Essays in Political and Moral Philosophy (1879), Preface. 
A different theory has been put forward by Sidgwick, Principles, bk. ii. ch. 3. 
A mathematical treatment of the whole subject, with a criticism of all the 
leading writers, will be found in a series of articles by Edgeworth on The Theory 
of International Values in the Economic Journal, vol. iv. (1894). Bastable and 
Edgeworth, while admiring and accepting Mill's first statement of the theory 
(ch. 18, §§ 1-5), agree in regarding " the superstructure of later date " (§§ 6-8) 
as " laborious and confusing." 



W. — ^The Regulation of Currency (p. 677) 

The question of the effect of the Bank Charter Act has lost much of its 
importance in consequence of the growing use of cheques. These cheques are 
now largely drawn not against actual deposits but against banking credits ; 
so that banks, while abandoning more and more the issue of notes, " manu- 
facture money " on a vast scale in another way. Hereon see Withers, Meaning 



BIBLIOGRAPHICAL APPENDIX 



997 



of Money, chs. 3 and 5. On the effect of an increase in the supply of gold, see 
Walker, Money, pt. i. oh. 4, and Withers, ch. 1. 



X. — Prices in the Nineteenth Century (p. 704) 

The actual movement of prices has been much investigated since the time 
of Mill ; and attempts, in large measure successful, have been made by Jevons 
and others to reduce the statement of it to precision by the use of Index Numbers. 
On the theory and practice of Index Numbers, see article by Edge worth, s. v., 
in Palgrave's Dictionary of Political Economy, vol. ii. ; Fountain's Memorandum 
in Report on Wholesale and Retail Prices (Board of Trade, 1903) ; and the 
article of Flux in (Harvard) Quarterly Journal of Economics (Aug. 1907). 

The following table, taken from the Blue-book of the Local Government 
Board on Public Health and Social Conditions (1909), presents the conclusions 
of Sauerbeck as to prices, and of Bowley as to wages, in a form convenient for 
comparison. 



Index Numbers showing Course of Average Wholesale Prices ani 

General Money Wages. 



[The wages and prices in 1850 being taken as 100 ; wages and prices in othei 
years in percentages of 1850 figures.] 



Tear. 


Index Numbers of 


Yeiar. 


Index Numbers of 












Prices. 


Wages. 




Prices. 


Wages. 


1850 


100 


100 














1895 


80-5 


159-2 


1855 


131-2 


— 


1896 


79-2 


160-7 








1897 


80-5 


162-3 


1860 


128-6 


119-2 


1898 


83-1 


166-5 








1899 


88-3 


170*4 


1865 


131-2 


127-5 














1900 


97-4 


178-7 


1870 


124-7 


134-1 


1901 


90-9 


177-0 








1902 


89-6 


174-7 


1875 


124-7 


161-4 


1903 


89-6 


173-7 








1904 


90-9 


172-8 


1880 


114-3 


148-8 














1905 


93-5 


173-3 


1885 


93-5 


149-4 


1906 


100-0 


175-7 








1907 


103-9 


181-7 


1890 


93-5 


161-3 









Note. — The Index Numbers here given have been calculated as regards 
Wages for the years to 1873 on the averages ascertained by Mr. Bowley — see 
the Economic Journal (Dec. 1898) and the Journal of the Royal Statistical 
Society (Dec. 1899) — and for later years on the percentages in the 12th Abstract 
of Labour Statistics of the United Kingdom (190^7), p. 54. As regards Prices, 



a»8 



BIBLIOGRAPHICAL APPENDIX 



the Numbers are based on the Index Numbers calculated by Mr. Sauerbeck — 
see Report on Wholesale and Retail Prices (1903), p. 451, and particulars in the 
Journal of the Royal Statistical Society (March 1908). 

With this may be compared the calculation of the Board of Trade, taking 
the level of 1900 as 100, as given in the Twelfth Abstract of Labour Statistics (1908), 
p. 80. 



Index Numbers of Wholesale Prices, 1871-1907. 1900 = 100. 



Year. 


Index 
No. 


Year. 


Index 
No. 


Year. 


Index 
No. 


Year. 


Index 
No. 


1871 


136-0 


1881 


127-3 


1891 


107-4 


1901 


96-9 


1872 


145-8 


1882 


128-4 


1892 


101-8 


1902 


96 


5 


1873 


152-7 


1883 


126-8 


1893 


100-0 


1903 


96 


9 


1874 


148-1 


1884 


114-7 


1894 


94-2 


1904 


98 


3 


1875 


141-4 


1885 


107-7 


1895 


91-0 


1905 


97 


6 


1876 


138-0 


1886 


101-6 


1896 


88-2 


1906 


100 


5 


1877 


141-6 


1887 


99-6 


1897 


90-1 


1907 


105-7 


1878 


132-6 


1888 


102-7 


1898 


93-2 






1879 


126-6 


1889 


104 


1899 


92-3 






1880 


129-6 


18&0 


104 


1900 


100-0 







Before making use of these figures it must be remembered that they indicate 
the movement of wholesale prices ; and attention would need also to be paid 
to the selection of commodities and the method of " weighting." 

To the Report on Wholesale and Retail Prices (1903) and to the " First 
Fiscal Blue-book " {British and Foreign Trade and Industry, Memoranda, 
&c., 1903) is prefixed as Frontispiece a chart combining the Index Numbers 
of Jevons for 1801-1846, of Sauerbeck for 1846-1871, and of the Board of 
Trade itself for 1871-1902 ; and so giving in one view the course of prices, so 
far as those materials indicate it, for the whole period 1801-1902. 

As to Retail Prices, calculations will be found in the First " Fiscal Blue-book," 
p. 215, and in the Second {British and Foreign Trade and Industry, Second 
Series, 1904), as to changes in the Average Retail Price of Workmen's Food in 
large towns in Great Britain during recent decades, as well as of the other 
principal items of the workman's budget, viz. rent, clothing, fuel, and light, 
during a quarter of a century. A considerable fall in food prices and a slight 
fall in the price of clothing since 1880 were in part counterbalanced by a rise 
in rents and, in the latter years, in fuel ; with the result indicated below 
{Second Series, p. 32) : 



Statement showing Estimated Changes in Cost of Living of the Working Classes, 
based on Cost of Food, Rent, Clothing, Fuel, and Light, in a series of averag-za 
for quinquennial periods. {Cost in the year 1900 = 100.) 





Index Number of 


Period. 


Cost of Living. 


Average of quinquennial period of which middle year is 1880 


.. 120-5 


,t »f tt 5j 1885 


.. 108-2 


1890 


.. 100-9 


1895 


.. 95-5 


1900 


.. 99-7 



BIBLIOGRAPHICAL APPENDIX 999 



Y. — CoMMEKCiAL Cycles (p. 709) 

In England there has been no " commercial crisis " since 1866, though crises 
have continued to make their appearance in the United States, as e.g. in 189? 
and 1907. But the alternations of commercial prosperity and depression 
continue ; and the cyclical movement, as Jevons first showed, seems to occupy 
about ten years. The study of the subject must begin with Jevons' papers 
(1875-1882) on the Periodicity of Commercial Crises, printed in his Investi- 
gations in Currency and Finance (1884). A guide to the history and literature 
of the subject will be found in Herkner's article Krisen in Conrad's Hand- 
woiierbuch der Staatswissenschaften. The relation between Foreign Trade, Bank 
Rate, Employment, Marriage Rate, Pauperism, &c., for the period 1856- 
1907 can be conveniently observed in Table IX, and Chart II, " The Pulse of 
the Nation," in Beveridge, Unemployment. On American conditions and their 
connexion with currency questions, see the papers of Seligman and others in 
The Currency Problem and the Present Financial Situation, (N. Y. 1908). 



Z. — Rents in the Nineteenth Centuey (p. 724) 

According to an estimate of Mr. R. J. Thompson printed in the Journal of 
the Royal Statistical Society (Dec. 1907) the rent of agricultural land in England 
and Wales advanced by probably 40 per cent, in the first twenty years of 
the nineteenth century. After 1820 a period of depression ensued, followed 
in 1840 by the beginning of an upward movement which continued with little 
intermission till 1878, when a serious depression again set in. The average 
rent of agricultural land in 1900 was 34 per cent, below the maximum of 1877, 
and 13 per cent, below the figure of 1846. The average rent of farm land in 
1900 was estimated at about 205. per acre, subject to charges for repairs, &c., 
amounting on the average to 35 per cent. ; so that the net rent probably 
averaged 135. per acre. Estimating expenditure on buildings, fences, drainage, 
&c., at 121. per acre, 3^ per cent, on this would amount to 85. 5d., leaving 
45. Id. per acre as " economic rent," in the Ricardian sense of payment for the 
use of the " original and indestructible powers of the soil.'* 



AA. — Wages m th3 Nineteenth Centuey (p. 724) 

There was undoubtedly a very large increase both in nominal or money 
wages and in real wages (i.e. their purchasing power) in the United Kingdom 
during the course of the century. The subject may be studied in Giffen's 
paper on The Progress of the Working Classes in the last halj -century, reprinted 
in Essays in Finance (2nd series, 1886 ; and the first and more important of 
them more recently in Economic Inquiries and Studies, vol. i.); Webb, Labour 
in the Longest Reign (Fabian Tract, 1897) ; Bowley, Wages in the United 
Kingdom (1900), National Progress (1904), and his articles in the Journal of 
the R. Statistical Society ; and Wood's article on Real Wages and the Standard 
of Comfort since 1850, in Jour. R. Stat. Soc. (March 1909). 

The conclusions arrived at by the last two statisticians for the period since 
1850 are thus summarised in the article last quoted, 1900-1904 being taken 
bj Bowley, and 1900-1902 by Wood, as basis, and called 100 : 



iooo 



BIBLIOGRAPHICAL APPENDIX 



Real Wages, 1850-1902. 



Bowley •• .^. 
Wood 


1850-4 


1855-9 


1860-4 


1865-9 


1870-4 


1875-9 


50 
56 


50 
54 


50 
59 


55 
63 


60 
69 


65 
75 


Bowley •-, 
Wood 


1880-4 


1885-9 


1890-4 


1894-9 


1900-2 or 4 


65 

76 


75 
86 


85 
92 


95 
97 


100 
100 



Compare also the table in Appendix X above. 

The progress in real wages began before 1850 ; thus, e.g. Bowley's Index 
Numbers for 1830 and 1840 are 45 and 50 respectevily (see National Progress, 
p. 33) ; and, for earlier periods, his conclusions are that while during 1790-1810 
real wages were falling slowly, during 1810-1830 they were rising slowly (see 
Appendix (1908) to Palgrave's Dictionary of Political Economy). The general 
result would seem to be a large rise on the whole between 1810 and 1900, 
though between 1840 and 1860 and again between 1873 and 1879 wages were 
almost stationary. 

During the century a progress in real wages of substantially the same 
character took place in other countries. For a comparison by Bowley of the 
United Kingdom, the United States and France for the period 1844-1891, see 
Econ. Jour. viii. 488 ; and for France, 1806-1900, see Gide, Sconomie Sociale, 
p. 64. 

BB. — The Importation of Food (p. 738) 

The following figures are given in the Report of the Agricultural Committee 
(1906) of the Tariff Commission : 



Imports of Wheat and Flour. 



Period. 


Imports 

per head. 

Owts. 


Percentage 
of Popula- 
tion fed 
from home- 
grown com. 


Period. 


Imports 

per head. 

Cwts. 


Percentage 
of Population 
fed from home- 
grown corn. 


1831-1835 


•119 


96-0 


1871-1875 


1-56 


48-0 


1836-1840 


•267 


90-0 


1876-1880 


1-85 


37-2 


1841-1845 


•308 


89-55 


1881-1885 


2-17 


26-4 


1846-1850 


•644 


78-45 


1886-1890 


2-09 


29-0 


1851-1855 


•755 


74-4 


1891-1895 


2-51 


15-2 


1856-1860 


•837 


71-9 


1896-1900 


2-38 


19-1 


1861-1865 


1^196 


59-4 


1901-1905 


2-54 


10-6 


1866-1870 


1-224 


58-4 









BIBLIOGRAPHICAL APPENDIX 1001 

For other estimates, and for sources of import, see " First Fiscal Blue-book " 
{British and Foreign Trade and Inditstry, 1903), p. 108. 

CC. — The Te^de^^cy of Profits to a Minimum (p. 739) 

Compare Cliffe LesHe's article on The History and Future of Interest and 
Profit in the Fortnightly Review (Nov. 1881 : reprinted in Essays, 2nd ed.) ; 
and Jueioj-Beaivlieu, Bepartition des Bichesses (3rd ed, 1888), ch. 8 ; and for the 
history of the rate of interest, see Schmoller, Grundriss, § 1-91 (Principes, vol. iii). 

DD. — The Subsequent History of Co-operatioit {p. 794) 

Since Mill -wrote. Industrial Co-operation in England has taken the 
direction mainly of the multiplication of retail stores, deriving their supplies in 
great measure from a great Wholesale Society : this " Wholesale " producing 
some of its goods in its own factories and purchasing the rest in the open market. 
It has not taken the form anticipated by him of self-governing productive 
associations, providing their own capital. The history of the various move- 
ments grouped under the name of Co-operation may be examined in Schloss, 
Methods of Industrial Bemuneration (3rd ed. 1898), chs. 22-24 ; Potter, The 
Co-operative Movement (1891) ; Webb, Industrial Co-operation (1904) ; Aves, 
Co-operative Industry (1907) ; and Fay, Co-operation at Home and Abroad 
(1908). For recent developments in " independent " productive co-operation, 
see Ashley, Surveys, Historic and Economic (1900), p. 399. 

EE. — The Subsequekt History of Income Tax {pp. 806, 817) 

For developments later than the time of MiU, reference should he had to 
Bastable, Public Finance (3rd ed. 1903), bk. iii. ch. 3 and bk. iv. ch. 4 ; Hill, 
The English Income Tax (Publications of the American Economic Association, 
1889) ; Seligman, Progressive Taxation (Am. Econ. Assoc. Quarterly, 2nd ed. 
1908) ; and two recent Beports, one of a Departmental Committee on the pre- 
sent working of the income tax (1905), and one of a Select Committee on Gradu- 
ation (1906). In the Finance Bill now (1909) before Parliament it is proposed to 
introduce a super-tax on incomes above a certain point, and give an abate- 
ment on incomes below a certain point in respect of every child (up to a specified 
number) below a certain age. 



FP. — ^The TiiXATioiT OF Land {p. 819) 

In the Finance Bill now (1909) before Parliament it is proposed to impose a 
tax (1) of 20 per cent, on the future Unearned Increment in value of non- 
agricultural land ; (2) of \d. in the pound of the capital value of " undeveloped " 
land. The proposed exemption of agricultural land, when compared with 
Mill's assumption that there was likely to be a constant increase in the value of 
agricultural land owing to a rise in the price of food due to the growth of popula- 
tion, indicates the effect upon the pubKc mind of the agricultural depression of 
the last two decades of the nineteenth century. On the general question of the 
assessment and special taxation of land values, see Beport of the Boyal Com- 
mission on Local Taxation (1901) ; Fox, The Bating of Land Values (1906) ; and 
the Blue-book on Taxation of Land in Foreign Countries (1909). 

2 K 2 



1002 BIBLIOGRAPHICAL APPENDIX 

GG. — The Incidence of Taxation {p. 863) 

On the whole subject of The Shifting and Incidence of Taxation recourse 
can now be had to the treatise of Sehgman bearing that title (2nd ed. 1899). 
For the incidence of Death Duties, Rates on Houses and Land, Inhabited 
House Duty, Taxes on Trade Profits and Taxes on Transfer of Property, see in 
particular the elaborate replies by " financial and economic experts " in the 
Blue-book, Memoranda relating to the Classification and Incidence of Imperial 
and Local Taxes {1899) ; and on the incidence of Import and Export Duties, 
see Edgeworth in Economic Journal, iv. pp. 43 seq. 



HH. — Company and Partnership Law {p. 904)i 

Partnership en commandite, as it is called abroad, is now allowed in the 
United Kingdom by the Limited Partnerships Act of 1907. This Act makes it. 
possible to create a " limited partnership, wherein one or more persons, called 
general partners . . . shall be liable for all debts and obligations of the firm," 
and " one or more persons, to be called limited partners, who shall at the time 
of entering into such partnership contribute thereto a sum as capital . . . shall 
not be liable for the obligations of the firm beyond the amount so contributed." 
A limited partner must not take part in the management of the business. 

The most important development since Mill wrote, however, has been tJie 
growth in commercial practice of what came to be known in business language 
as " private companies," though organised under the general company law. 
This form has been increasingly adopted by businesses which wished to combine 
the advantages of Limited liability with the advantage of unity and privacy 
of management belonging to the sole trader or old-fashioned firm. The 
legality of such arrangements, which were certainly not contemplated by the 
legislature when it introduced Limited Liability, was finally settled by the 
decision of the House of Lords in 1896 in the case of Broderip v. Salamon, See 
hereon Palmer, Private Companies and Syndicates. The conception of a " pri- 
vate company " was finally recognised and defined by the Companies Act of 
1907. According to this Act a private company " means a company which 
by its articles (a) restricts the right to transfer its shares ; and (b) limits the 
number of its members (exclusive of persons who are in the employment of the 
company) to fifty ; and (c) prohibits any invitation to the public to subscribe for 
shares or debentures." For the formation of such a company, instead of the 
seven members formerly required by the Companies Acts, two members will now 
suffice. 



II. — Protection {p. 926) 

Mill's general line of argument has been further pursued and applied to 
contemporary conditions by Ga,h:nes.,Jjeading Principles ; Fawcett, Free Trade 
and Protection (6th ed. 1885) ; and Farrer, Free Trade and Fair Trade (4th ed. 
1887). Criticisms and considerations of other kinds will be found in Sidgwick, 
Principles of Political Economy, ch. v. ; Patten, Economic Basis of Protection 
(Philadelphia, 1890) ; Johnson, Protection and Capital, in Political Science 
Quarterly, xxiii. (N. Y. 1908) ; Lexis, Handel, in Schonberg's Handbuch der 
Politischen Oekonomie (4th ed. 1898), vol. ii. ; and Schmoller, Grundriss, §§ 253- 
271 (in Fr. trans. : Principes d'Economie Politique, vol. v.). 

Mill's concession in favour of " infant industries " (bk. v. ch. 10, § 1) waa 
much quoted subsequently in America, Australia and Canada. Writing to sh 



BIBLIOGRAPHICAL APPENDIX lOO^ 

correspondent in 1869 (see Letters, ed. Elliot), he expressed an intention to 
"withdraw" the opinion, and remarked: "Even on this point I continue to 
think my opinion was well grounded, but experience has shown that protec- 
tionism, once introduced, is in danger of perpetuating itself . . . and I there- 
fore now prefer some other mode of public aid to new industries, though in 
itself less appropriate " ; but in preparing the edition of 1871 he contented 
himself with the verbal changes indicated on p. 922 n. 1. 

Mill makes no reference in his Principles to the writings of Friedrich List, 
the intellectual founder of the Zollverein, whose ideas have greatly influenced 
the subsequent commercial policy as well as the economic thought of Germany. 
Thereon see List's National System of Political Economy (1840, Eng. trans, by 
Lloyd : new ed. with Introduction by Nicholson, 1904), and Schmoller's article 
on List in Zur Litteraturgeschichte der Staats- und Sozialwissenschaften (1884). 

A new stage in the discussion was opened by the grant of Preference to im- 
ports from England by the Dominion of Canada in 1897 — an example since 
followed by the other great self-governing Dominions of the British Empire ; and 
by the movement in favour of a policy of reciprocal Preference by the Mother 
Country, initiated by Mr. Joseph Chamberlain, then Colonial Secretary, in 1903. 
The most important collections of political speeches on this subject are, on one 
side, those of Chamberlain, Imperial Union and Tariff Reform (1903) ; Bonar 
Law, The Fiscal Question (1908) ; and Milner, Imperialism and Social Reform 
(1908) ; and, on the other, Asquith, Trade and the Empire (1903) ; Haldane, 
Army Reform and Other Addresses (1907) ; and Russell Rea, Insular Free Trade 
(1908). See also Balfour, Economic Notes on Insular Free Trade (1903). 

Among the writings called forth by the controversy may be mentioned, of those 
in favour of some modification of the present tariff policy : Caillard, Imperial 
Fiscal Reform (1903) ; Ashley, The Tariff Problem (2nd ed. 1904) ; Cunningham, 
The Rise and Decline of the Free Trade Movement (1904) and The Words of the 
Wise (1906) ; Graham, Free Trade and the Empire (1904) ; Palgrave, An En- 
quiry into the Economic Condition of the Country (1904) ; Price, Economic Theory 
and Fiscal Policy, in the Economic Journal, xiv. (Sept. 1904) ; Compatriots'" Club 
Lectures (1905) ; Kirkup, Progress and the Fiscal Problem (1905) ; Welsford, 
The Strength of Nations (1907) ; Lethbridge, India and Imperial Preference 
(1907) ; and Milner's article on Colonial Policy and Vince's on The Tariff 
Reform Movement in Palgrave, Dictionary of Political Economy, Appendix 
(1908). 

Among the writings in favour of the present policy may be mentioned : 
Money, Elements of the Fiscal Problem (1903) ; Avebury, Essays and Addresses 
(1903) ; British Industries under Free Trade, ed. Cox (1903) ; Labour and Pro- 
tection, ed. Massingham (1903) ; Smart, The Return to Protection (1904) ; Hob- 
son, International Trade (1904) ; Bowley, National Progress (1904) ; various 
papers by G iff en in Economic Enquiries (1904) ; Brassey, Sixty Years of Pro- 
gress (new ed. 1906) ; Pigou, Protective and Preferential Import Duties (1906) ; 
The Colonial Conference (Cobden Club, 1907) ; and Marshall, Memorandum on 
the Fiscal Policy of International Trade (White Paper, 1908). 

Materials, statistical and political, for a judgment will be found in the two 
" Fiscal Blue-books " — British and Foreign Trade and Industry, Memoranda, 
ffcc, 1st series, 1903 ; 2nd series, 1904; in the Proceedings of the Colonial Con- 
ferences oi 1887, 1894, 1897, 1902, 1907; s^ndimihe Reports and Memoranda of the 
Tariff Commission, since 1904. Among foreign works bearing upon the problem 
may be particularly mentioned : Fuchs, The Trade Policy of Great Britain (1893 : 
Eng. trans. 1905) ; Wagner, Agrar- und Industriestaat (2nd ed. 1902) ; Schwab, 
Chamberlain's HandelspolitiJc, with Preface by Wagner (1905) ; and Schulze- 
Gaevernitz, Britischer Imperialismu^ (1906). On the history of the English 
Corn Laws, Nicholson's book with that title (1904) should be consulted. Free 
Trade and the Manchester School, ed. Hirst (1903), is a convenient collection of 
speeches, &c.. of the thirties and forties. 



1004 BIBLIOGRAPHICAL APPENDIX 

JJ.— Usury Laws (p. 930) 

The pretty general repeal all over Europe of the old usury laws has been 
followed since 1878 by a reaction, and a great number of " usury laws " have 
been passed in Germany, Austria, Hungary, Switzerland, and other countries ; 
as well as for the possessions of the Great Powers outside Europe, as e.g. for 
the Punjaub, the Soudan, Algiers, &c. For an account and estimate of this 
movement, see Schmoller, Orundriss, § 189 {Principes, vol. iii.). As to the English 
" Money-lenders Act " of 1900, see the observations from a point of view 
identical with that of Mill in Dicey, Law and Public Opinion in England (1905), 
pp. 33 and 45. 



KK. — The Factory Acts {p. 759) 

See, on the whole subject, Hutchins and Harrison, A History of Factory 
Legislation (1907). The legislature, after restricting the freedom of contract 
of adult men in various other ways, began very tentatively in 1893 to regulate 
their hours of labour by the Act of that year giving power to the Board of Trade 
to order railway companies to submit revised schedules of hours of duty for 
their servants : hereon see Bulletin of the U.S. Department of Labour, No. 20 
(1899). Since then, by the Miners' Eight Hours Act (1908), it has introduced a 
normal day " f or a large number of adult men. 



LL.— The Poor Law {p. 969) 

The Report of the Royal Commission on the Poor Law (1909) contains copious 
and systematically arranged treatises, in the Majority and Minority Reports, 
and in the supplementary volumes of Reports of special inquiries, on all 
aspects of the history and practice of the Poor Law since 1834 ; and will doubt- 
less lead to considerable legislative changes. 



MM. — The Province of Government {p. 979) 

On this subject, in its general philosophical aspects, the most influential 
English writings since the time of Mill have perhaps been those of Sidgwick, 
Principles of Political Economy (1883), bk. iii. chs. 3 and 4 ; and Elements of 
Politics (1891) ; and Green, Lectures on the Principles of Political Obligation in 
Wof-ks (1886), vol. ii. See also Ritchie, Natural Rights (1895), and, with regard 
to certain arguments drawn from modern biology, his Darwinism and Politics 
(1889). 



INDEX 



A 

Abstinence, remuneration for, 32, 36, 
729 

Agriculture, natural advantages, 102 ; 
much division of labour impos- 
sible in, 131; grande and petite cul- 
ture, 144-5 ; improvements in, 183 ; 
British, ib. ; produce, 572-3 

Allotment system, 368 

America, Indians in North A., 104 
work in, 105 n. ; Indian villages 
167-9 ; farming in, 180 ; emigra 
tion, 197 ; slavery {q.v.), 251 
tenure in North A., 258 ; popula 
tion, 350, 353 ; cotton trade 
414 ; profits, 420 ; silver mines 
485, .607; Spanish A., 655 
cotton failure, 665 ; wages, 681 
cotton, 682 ; rates of profits, 731 
wealth and population, 761, 892 

Arctic whale fisheries, 27 

Argovie, population, 291 ; laws of 
marriage, 355 

Arkwright, invention of, 96 ; its 
efiect, 193, 350 

Asia, economical condition, 14 ; cause 
of poverty in, 113 ; population in, 
159 ; high rate of interest in, 175 ; 
limits of production in, 189 

Attwood, on currency, 550 

Australia, wool-growers, 43 ; Western 
A., 65 ; agriculture in, 194 ; coloni- 
sation, 197 ; growth of population 
in, 350 ; gold mines, 485 ; annual 
gold produce, 673 ; wealth and 
population, 761 ; colonisation, 973 

Austria, serf labour, 252 ; currency 
reform, 667 

B 

B ABB AGE, IVIr., Economy of Machinery 
and Manufacture, 107 ; instances of 



frauds, 112 ; value of trust in busi- 
ness, ib. ; on division of labour, 
123, 125-6, 129 ; on production on 
a large scale, 132 ; on co-operation, 
765, 772 n. 

Bank Charter Act, 651 

Bank notes, 519, 529 

Barham, Dr., 765 

Bastiat, metayers, 305 n. ; on property 
in land, 430 

Bavaria, farms, 298 ; laws of mar- 
riage, 354 

Beam, small farms in, 279 

Bedford Level, the, 92, 182, 230, 430 

Bedfordshire, lace-making, 311 ; agri- 
cultural labourers, 357 

Belgium, cattle in, 147 n. ; peasant 
proprietors, 239, 271 ; manufac- 
turing distress (in 1849), 275 n. ; 
population, 296 ; Poor Colonies of, 
424 ; peasant-class, 482 

Bengal, land tenure, 327 

Bentham, 223, 397, 806, 861, 885, 927 

Bequest, 226 

Berlin Decrees, the, 112 

Berne, farms, 262 n., 269 

Berwickshire, farmers in, 265 

Birmingham, currency school, 550 

Blacker, William, 146 n. 

Blackstone, on entails, 895 

Blanc, Louis, 203, 773, 780 n. 

Bombay, land tenure, 327 

Brazil, slavery in, 255 ; bullion, 608 

Briggs, Messrs., co-operation, 771 

Browne, Mr. ,Consul at Copenhagen, 292 

Buckinghamshire, lace- making, 311 ; 
agricultural labourers, 357 



Cabet, 203 

Cairnes, Prof., on Ireland, 338 n. 
California, gold mines, 485 ; gold from, 
673 



1006 



INDEX! 



Campagna of Rome, agricultural ten- 
ure, 240, 258 ; small farms in, 276 n. 

Campbell, Lord, 886 

Campine, the sands in, 271 

Canada, emigration to, 197 ; timber 
trade, 415 

Capital, defined, 54 ; distinction be- 
tween C. and not-C, 66 ; wages a 
part of C, 57 ; further examples of 
use of, 59 ; fundamental proposi- 
tions respecting C, 63 ; distinction 
between industry and C, 64 ; C. 
may perish for want of labour, 65 ; 
error that unproductive expenditure 
of C. will employ the poor, 66 ; 
C. and luxuries, 67-8 ; source of, 
68 ; how consumed, 70 ; perpetual 
consumption and reproduction of 
C, 74 ; C. of producer pays labour, 
79 ; circulating C. defined, 91 ; fixed 
C. defined, 92 ; distinction between 
circulating C. and fixed C. , 93, 99 ; 
a primary requisite of production 
iq.v.), 101 ; law of increase of, 163 ; 
net- produce of, 164 ; great accumu- 
lation in England, 173 ; transfer 
among employments, 412 ; C. and 
profits, 452, 639 ; waste of, 731 ; 
sinking of, 742 

€arey, H. C, population, 157 n., 
158 n. ; on law of agricultural in- 
dustry, 181-2 ; on rent, 430-2 ; on 
partnership, 902 n. ; on chartered 
companies, 907 ; on protection, 
922-5 

Chalmers, Dr., 67 n., 75, 77 ; on land, 
424, 657, 562, 690, 727, 840 

Chancery, Court of, 885, 906 

Channel Islands, peasant properties in, 
276-7 

Charity, 969 

Charlevoix, 169 

Chateauvieux, on metayers, 303, 308, 
310, 311 

Cherbuliez, 777 n., 780 n. 

Cheques, and prices, 536 

Chevalier, on co-operation, 769 

China, 105 n., 170 ; stationary state* 
in, 172-3, 565 ; American ships 
trading to, 764 

Circulating and fixed capital, 91 

Clement, 295 n. 

^Colonisation, Wakefield on, 121 ; 
remedy for low wages, 381 {see 
Wakefield) 

Commandite, 900 



Communism, 202 w., 203; examined, 
204-11 

Competition, 242 ; in prices, 245 ; of 
different countries in the same 
market, 678-87 ; underselling, 
679-84 ; advantage of, 793 

Co-operation, increases productive- 
ness of labour, 116 ; in agriculture 
iq.v.), 144 ; growth of, 698 ; forms 
of, 764-94 ; EngUsh, 783-8 

Coquelin, 902, 904-5 

Corn, laws, 186, 338 ; taxes, 840-7 ; 
laws (again), 920 

Cornish miners, 765 

Cost of production, 451-68, 560, 569 

Cottiers, 318-28 ; means of abolishing 
cottier tenancy, 329-42 

Cotton famine, 757 

Credit, effect on profits, 413 ; as a 
substitute for money {q.v.), 511- 
22 ; defined, 511 ; credit and 
commerce, 514 ; bills of exchange, 
515 ; cheques, 520 ; influence on 
prices, 523-41 ; commercial prices, 
527 ; bank notes, 531-52 ; Bank of 
England notes, 539 ; an inconver- 
tible paper currency, 542-55 ; 
Bank of England (1819), 552 

Crimean War, effect on currency, 665 

Crises, 641, 644, 651, 709, 734, 845 

Cuba, slavery in, 249, 255, 686 

Cumberland, 257 

Currency, influence of, on exchanges 
and foreign trade, 629-38 ; de- 
preciated, 646 ; on the regulation of 
a convertible C, 656-7 n. ; paper 
C, 651-77; Bank Charter Act 
(1844), 657-8 ; drains on Bank re- 
serve, 672 n. ; bank-note C, 674 

Custom, 242 ; defined, 243 ; in prices, 
247 

D 

De L'Islb Beock, on Guernsey 
labouring classes, 276-7 

Demand for commodities, 79 ; deter- 
mines direction of labour, 87 

Demand and supply, and value, 442 ; 
defined, 445 ; demand exceeding 
supply, 446 ; monopolies, 449; value 
of labour depends upon, 450 ; real 
law of, 455 ; recapitulation, 456 

Denmark, 239 n. ; abolition of slavery, 
255 ; population, 292 ; currency 
reform, 667 



INDEX* 



1007 



Deposits, bank, 648 

De Quincey, on value, 436-7, 442, 
446, 449, 454 

Devon Commission on Ireland, 323, 
337 n. 

Diminishing Returns, law of, 177, 179, 
181, 183, 185, 188, 190, 427, 469 

Distributing class, defined, 39, 789 

Distribution, laws of, 21, 200 ; dis- 
tribution as affected by exchange, 
688-94 ; influence of the progress of 
society on production and distribu- 
tion, 695 

Domestic manufactures, 683 

Dorsetshire, agricultural labourers, 357 

Doubleday, on population, 157 n., 
158 n. 

Dunning, T. J., 939 n. 

Dunoyer, on extractive industry, 33, 
950-2, 954 n. 

Elliott, J. H., 911 w. 

Ellis, William, on machinery, 728 

Emigration, cause of, 193 ; in form 

of colonisation, 197, 701 
Engadine, peasant proprietors, 261 
Engineers, Society of, 936, 938 
England, agriculture, 31 ; reproduc- 
tion of wealth {q.v. ), 74 ; compared 
with other nations, 101 ; workmen 
in, 105 n. ; law and police, 111 ; 
security, 115 ; increase of produc- 
tion on a large scale, 142 ; small 
farms, 145 ; cattle, 147 n. ; popu- 
lation, 160-1 ; accumulation of 
capital iq.v.), 173 ; land cultiva- 
tion, 175, 182-5 ; Poor Laws {q.v.), 
187 ; population progress, 192 ; 
wages iq.v.), 220 ; bequest, 228-9 n. ; 
landed property, 232 ; yeomen, 256 ; 
farmers, 265 ; peasants, 267 ; agri- 
culture, compared with the Channel 
Islands- {q.v.), 277 ; rate of popu- 
lation, 294 ; tenant farmers, 306 ; 
wages and food, 347-8 ; agricul- 
tural population, 356 ; retail profits, 
415-20; land in, 426-31; gold 
standard, 509 ; high prices, 610 ; 
currency, 633 ; banking, 677 ; agri- 
culture, 704 ; interest, 730-5 ; over- 
flow of capital abroad, 738 ;' rail- 
ways, 743-5 ; co-operation, 783-8 ; 
land-tax, 819 ; tithes, 845 ; law of 
inheritance, 890 



Escher, Mr., of Zurich, 109 

Europe, 2 ; ancient agriculture in,, 
14 ; source of wealth of modern 
E., 17 ; temperate regions, 102 ; 
security, 113 ; market for Indian 
goods, 122 ; population, 153, 159, 
161 ; effective desire of accumu- 
lation, 170 ; cultivation, 179 ; 
property, 208 ; laws, 227 ; usage 
of tenure, 245 ; custom of prices, 
247 ; farms, 270 ; hoarding, 554 ; 
profit and savings, 731 ; taxation 
of land, 819 

Exchange, the operation of, 88 ; bills 
of, 515, 529, 613 

Exports and Imports, 578, 611, 619; 
disturbances of, 618, 624 ; undis- 
turbed, 625 ; taxes on, 850-6 

F 

Fane, Cecil, 898 n., 90^ w., 914 n. 

Fawcett, Prof., 937 

Feugueray, 774, 780 n., 781-2, 793 

Flanders, 18; security, 114; small 
farms and peasant-farming, 147-8 ; 
high farming, 179 ; crops, 265, 271- 
5, 280 ; peasant proprietors, 284 ; 
population, 291 ; free cities, 882 

Flemish Husbandry, treatise on, 147 w. 

Florence, metayers near, 309-11 

Food, importation of, 193 ; exports of, 
195 

Foreign exchanges, 612-18 

Fourierism, 204, 212 ; examined, 213- 
16 

France, agriculture, 31 ; railways, 
144 ; cattle, 148 n. ; labour, com- 
pared with England, 150-2 ; popu- 
lation, 153, 161 ; cultivation, 182 ; 
Socialism, 204, 211 ; bequest, 227, 
229 n. ; trades, 236 ; peasant pro- 
prietors, 239 ; agricultural tenure, 
240, 260 n., 278 ; metayers, 306-7 ; 
food, 481 ; silver standard, 509 n. ; 
credit, 522 ; assignats, 547 ; trade, 
575 ; bank notes, 666 ; agriculture, 
704 ; co-operation, 783 ; taxes, 820 ; 
law of inheritance, 890 ; partner- 
ship laws, 900 ; manufactures, 
900-2 

Frankfort, laws of marriage, 354 

French Economistes, on rent, 26 

Fullarton, on currency, 498, 500 n., 
537 ; bank circulation, 652-5, 668- 
70, 675 



1008 



INDEX 



Ges-MANY, medieval free towns, 18; 
wood- cutters, 34 ; peasant proprie- 
tors, 239 ; northern provinces, 252 ; 
cultivation of land, 260 n., 264 n., 
267 ; population, 291 ; peasant 
class, 482 ; trade with, 575 ; inter- 
national values with, 584-606 ; 
co-operation, 783 

Gisquet, co-operation, 77 n. 

Gladstone, income-tax, 806 n. texa- 
tion, 871 

Godley, J. R., 179 n. 

Gold and silver, as money (q.v.), 
484 ; as commodities, 502, 607-11 ; 
their distribution in commerce, 619- 
28 ; their cost of production varies, 
629 

Government, its functions, 795-801 ; 
revenues from taxation {q.v.), 802 ; 
on the ordinary functions of, con- 
sidered as to their economical effects, 
881-8; further effects, 889-915; 
interference of, 916-40; protection, 
917-26; monopolies, 932 ; combin- 
ations of workmen, 933-9 ; limits 
of G., 941-79 ; laissez-faire, 
950 

Graduated taxation, 806, 808 

Gray, John, on money, 549 

Great Britain, coal-fields, 103 ; farm- 
ing, 180 ; emigration, 197 ; landed 
proprietors, 231 ; workmen, 239 n. ; 
emigration for colonisation {q.v.), 
384 ; land value, 431 ; credit, 521 ; 
agriculture, 704 ; population, 704 ; 
tithes, 845 

Greece, soldiers' gains, 50 ; sculptures 
of, 74; its colonies, 114 

Greeks, ancient, 48, 104 

Guernsey, peasant farms, 276 

H 

Hainatjlt, crops in, 271 

Hanse towns, 686, 882 

Hardenberg, land reforms, 334 

Hargreaves, invention of, 96 

Harlem, Lake of, 182 

Head, Sir George, on Guernsey, 276 

Holland, cattle in, 147 n. ; low rate 

of interest, 173, 175 ; fens of, 185 ; 

crops in, 265 ; peasant farms, 271 ; 

trade, 687 ; profits, 884 
Holyoake, 784-8 



Howitt, W., 26ft 

Hubbard, on income-tax, 815 ». 

Huber, Prof., 780 n. 

Hume, on money, 496, 550-1 

Hungary, 20 w., 252 n., 738 



IxcoM"E-TAx, 806-17; graduated, 808- 
10; on annuities, 811; savings, 
813-17 ; defined, 829-32 

Inconvertible currency, 542-55, 634 

Increasing returns, 703 

India, 13, 121 ; small towns, 122 ; 
native states, 173 ; tenure, 240 ; 
ryots, 243 ; customs in tenure, 244 ; 
land tenure, 324-8 ; high interest 
on loans, 409 

Industry, extractive, defined, 33 ; 
limited by capital (q.v.), 63 ; dis- 
tinction between I. and capital, 
64 ; influence ot the progress of I. 
and population on values and prices, 
700-9 ; influence of the progress of 
I. and population on rents, profits, 
and wages, 710-24 

Inglis, 260 

Inheritance, 221 

Inquisition, the, 940 

Interest, defined, 406 ; market rate of, 
411 ; on the rate of, 639-50; and 
loans, 639 ; fluctuations, 641 ; war 
loans, 643 ; rate depends on capital 
loaned, 647 ; value and price of 
funds determined by, 649 ; low 
interest, 732-3 

International trade, 574-606 

Ireland, 102 ; farms small, 145-9, 
180; tenancy, 187; emigration, 
197; landed property, 232; tenure, 
318 ; cottiers, ib. ; peasantry, 322- 
34 ; proposed reforms in cottier 
tenancy, 331-7 ; low wages, 419 ; 
low profits, 420 ; emigration for 
colonisation, 975 

Irish peasantry, 56 ; landowners, 234 1 
cottier tenants, 258 

Italy, ancient, 16 ; towns in medi- 
eval L, 18; security in, 114; 
peasant farming in, 148, 239 ; agri- 
cultural tenure, 240, 258, 260 n. ; 
crops in, 280 ; peasant farming, 
284; metayers, 303, 307, 308, 311, 
316 ; peasant-class, 482 ; free cities 
of, 882 



INDEX 



1009 



9 

Jacob, L. H., on serf labour, 252 

Jamaica, negroes, 105 

Japan, life in, 105 n. 

Jersey, farms, 277 

Johnson, Dr., on inheritance, 891 

Joint-stock companies, promote pro- 
duction on a large scale, 137 ; dis- 
advantages of, 138-40 ; with 
limited liabihty, 642, 903 

Jones, Prof. R., on serf labour, 252 ; 
population, 288 ; metayers, 307, 
310, 316 



Kay, Mr., 263 w., 269, 270 n., 271 ; 
population, 291, 354 



Laboue, a requisite of production 
iq.v.), 22-d ; various kinds of pro- 
ductive, 33-41 ; unproductive, 44 ; 
three classes of, 47 ; productive 
L. defined, 48; unproductive L. 
defined, 49 ; L. depends on capital 
iq.v.), 79; is a primary requisite 
of production, 101 ; division of 
L., 116-18; of women, 119; limited 
by markets, 130 ; law of increase of 
L., 155-62 ; the produce does not 
increase in proportion to L., 177 ; 
cost of L., 420 ; value of, 450 ; 
cost of (again), 681, 691-4 
Labourers, 20, 31 ; effect on, of change 
of circulating capital {q.v.) into fixed 
capital, 94-9 ; Italian, French, 
English, Swiss, German, Dutch, 
Saxon, compared, 109-10 ; prob- 
able future of the labouring 
classes, 752-94 
Labourers, Statute of, 934 
Lacedsemon, iron money, 485 
Laing [d. 1868], on productiveness, 
106 n. ; on peasant proprietors, 
-263-4, 289; English farming, 298 
n. ; wages on the Continent, 371 
Laing [d. 1897], on Cornish miners, 

765 n. 
Laisser faire, 940, 950, 957 
Lancashire, bills of exchange, 519 
Land, 26, 74, 93, 108, 145, 155; is 
a requisite of production, 156 ; law 
of increase of production from, 176 ; 



limited quantity, ib. ; law of pro- 
duction from, defined, 177 ; pro- 
perty in, 231 ; taxation of, 818-21 
Latium, 258 
Lavergne, Leonce de, 154 w., 266 n., 

285, 294, 295 n., 298 
Leatham, on bill- circulation, 536 n. 
Leclaire, and co-operation, 768-70 
Legoyt, on population, 293 n., 294 
Limited Liability, 899 
Limited Partnership, 900, 903 
Limousin, metayers, 307, 308 
Lincolnshire Wolds, rent of, 430 
Liverpool, population, 352 
Loans, war, 77 n. {see Interest) 
Lombardy, cattle in, 147 n. ; peasant 
proprietors, 264 n. ; farming in, 
265 ; metayers, 308 
London, post office, 134 ; population, 
352 ; wages, 387 ; the Clearing 
House, 521 
Liibeck, laws of marriage, 354 
Lyell, Sir Charles, farming in America, 
279 n, ; bequest in America, 229 n. 

M 

McCuLLOCH, 44 ; peasant farms, 271 ; 
population, 288 ; metayers, 307 ; 
property, 747 ; income-tax, 816 w. ; 
tax on cost of production, 837 

Machinery, effects, 94, 742 

Madras, land tenure, 327 

Maine, Ancient Law, 222 n. 

Mai thus, 67 w., 156, 157 n., 158 n., 
160, 165, 349 n., 351-2, 359, 365, 
376 ; rediscovered theory of rent, 
425 ; on over-supply, 557, 562 ; on 
measure of value, 568 ; on popula- 
tion, 747 

Manilla, Chinese co-operation, 771 n. 

Manufactures, domestic, 64 n. ; im- 
provements in, 108 

Margin of cultivation, 690, 716, 840 

Market for commodities is not em- 
ployment of labour {q.v.), 120 

Massachusetts, 229 n., 907 

Mecklenburg, laws of marriage, 353 

Mercantile system, 2, 677, 918 

Metayers, 302 ; defined, 303 ; Adam 
Smith on, 305 ; Arthur Young on, 
306 

Michelet, on peasant proprietors, 284 
n., 300 n. 

Milan decrees, the, 112 

Milanese, the, metayers. 307 



1010 



INDEX 



Mill, James, on over-supply, 562 ; on 
international trade {q.v.), 576 ; in- 
come-tax, 816 n. 

Mixter, Prof., 165 n. 

Money, 3, 54, 72 ; defined, 483 ; gold 
and silver, 485 ; a commodity, 488 ; 
its value depends on demand and 
supply, 490 ; M. and prices, 496 ; 
M. and cost of production {q.v.), 
499-506 ; coining, 501 ; double 
standard, 507-10; credit {q.v.), 
511; commercial crisis, 561; as 
an imported commodity, 607-11 ; 
bills of exchange; 612-18 ; its 
distribution in commerce, 619-23 ; 
M. and laws of value {q.v.), 626 ; 
loans, 645 

Monopoly, 410, 449 

Montesquieux, 482, 484 

Moravians, the, 202 

Munich, laws of marriage, 354 

Mushet, JVIr., on Bank restriction, 
554 

N 

Naples, tenure, 245 ; metayers, 
304 n. 

Napoleonic wars, 77 n. 

National Debt, 873-80; paying off, 
876-80 

Natural objects, as requisite of pro- 
duction {q.v.), 22, 101 

Nature, man's power over, 25 

Navigation laws, 920 

New England, 197, 229 n. 

New York, shipping, 908 

New Zealand, colonisation, 973 

Newmarch, on bill- circulation, 536 n. 

Newry, tenant-right, Ireland, 341 

Niebuhr, on peasant farms, 276 n. 

Norway, 34 ; population, 160, 290 ; 
peasant proprietors, 239, 263 ; laws 
of marriage, 353 

O 

Olmsted, on slave states, 251 

One-pound notes, 656, 676 

Oriental opulence, belief in, 12 ; 

famines in 0. countries, 19; modern 

0. society, 20 
Overstone, Lord, regulation of the 

currency, 656 
Owen, Robert, 203, 773, 783 
Owenism, 202 n., 210 



Palatinate, the, peasant proprietors, 
266, 296 n. 

Paraguay, Indians in, 169, 212 

Parennin, Father, on the Chinese, 171 

Paris, population, 153 n. ; farms near, 
285, 296 ; co-operation in, 768 

Parliament, railway Acts, 98, 176 

Passy, M., farms, 147 n. ; large and 
small farms, 152 ; net produce, 
153 n. ; farming in France, 297 ; 
metayers, 307 n. 

Peasant proprietors, 256 ; English, 
257 ; Swiss, 258-63 ; Norway, 263 ; 
Flanders, 265 ; Germany, 266-71 ; 
Belgium, 271-5 ; the Channel Is- 
lands, 276-7; France, 277-82; 
Arthur Young {q.v.), 283 ; of the 
Continent, 286 

Peel, Sir Robert (his Act of 1844), 
651 

Piedmont, small farms, 264 n. ; me- 
tayers, 303 n., 308, 309; co-opera- 
tion, 783 J 

Plummer, 783 n., 784 n. 

Poland, population, 195 ; trade with, 
576 ; capital in, 738 

Politics, science of, 891 

Poor Law, the, 84; Report (1840), 
109 ; English poor laws, 160 ; Irish 
poor laws, 197 ; Swiss, 262 ; new 
English, ib. ; Act of Elizabeth, 
365; Poor Law (of 1834), 368; 
Act of Queen Anne, 395 ; Poor Laws, 
967 

Population, 12, 120-1 ; increase of, 
153, 156-61 ; over-population, 191 ; 
peasantry population, 288-96 ; 
table of various nations' popu- 
lation, 293 n. ; progress of, 561 ; 
influence of the progress of industry 
and population on values and 
prices, 700-9 ; influence of the 
progress of industry and population 
on rents and profits and wages, 
710-24 

Possessions, origin of inequality of, 10 

Prescription, 220 

Prices, 245 ; retail and wholesale, 441; 
money and, 524 ; influence of credit 
{q.v.), 523-41 ; general rise, 551 ; 
influence of industrial progress on, 
700-9 ; speculators, 706-8 ; fluctua- 
tions from supply, 709 

Production, laws of, 22-8 ; the three 



INDEX 



1011 



requisites of, 54, 101 ; on a large 
and on a small scale, 132, 134, 136- 
7 ; law of increase of, 155 ; the 
three requisites (again), 156, 163 ; 
law of P. from land {q.v.), 177; 
cost of P., 183 ; laws of P. from 
wealth (q.v.), 199 ; cost of P. (again), 
451, 453, 457-68 ; progress of, 561 ; 
joint cost of P., 570-3 ; cost of P. 
(again), 700 ; increase of P., capital 
and population, 722 ; improvements 
in P., 735-6 ; tax on cost of P., 837 

Productive agents, on what their 
degree of productiveness depends, 
101 ; natural advantages of, 102 ; 
skilled labour in using, 109 ; 
security, 113 

Productive and unproductive labour, 
44-53 

Profit, origin of, 32 ; P. of stock de- 
fined, 164; P. of capital, 462-4; 
extra P., 476 ; part of production, 
477 

Profits, 405 ; gross, 406 ; lowest rate 
possible, 407 ; retail, 409 ; vary, 
412 ; custom affects, 415 ; causes 
determining amount of, 416 ; the 
rate of P. depends on wages, 419 ; 

^ tax on P., 824-7 

Progress of society, summed up, 723- 
4 

Progressive taxation, 806, 808 

Property, private, 201; P. and 
European nations, ib. ; P. defined, 
218-21 ; bequest of, 222, 226 

Prussia, serf labour, 252 ; peasant 
farms, 271 ; landed property re- 
forms, 334 ; marriage laws, 354 ; 
currency reform, 667 



QUETELET, 293 n. 



R 

Rae, John, 129 n., 165 n., 166, 169, 

170, 172, 870 n., 922 
Railway Board, 946 
Rau, Prof., on small farms, 152, 269, 

270 
Registration cf land, 886 
Reichensperger, Herr, 263 n., 270 
Rent, of land, 26 ; not productive, 

57 ; cause of, 422 ; theory of, 425 ; 

some agricultural capital pays no 



R., 427; R. and profits, 429; is 
not part of cost of production, 
433, 468 ; R. in relation to value, 
469-71 ; law of R., 472, 691 ; 
rents rise, 712-14; rents fall, 717- 
20 ; tax on house and ground R., 
823-36 

Revans, Mr., on Irish peasantry, 322 ; 
on income-tax, 831 

Rhine province, 269 ; crops in, 280, 
285 ; division of farms, 298 

Ricardo, 80 ; on wages, 347 ; on rent, 
425, 432; on profits, 419; on 
value, 452, 458-9, 461 ; on over- 
supply, 563 ; on international trade, 
576 ; on gold and silver, 625 ; on 
interest, 638 ; on taxes, 822 

Rickmansworth, land experiments at, 
336 n. 

Roads, value of, 184 

Robinson, on Irish Waste Land 
Society, 337 n. 

Rochdale Pioneers, the, 784-8 

Romans, the, 16, 60, 104, 114, 167, 
485 

Russia, emancipation of slaves [1861], 
17 ; corn from, 30 ; state of, 101, 
190, 195; serf labour, 252; table 
of various populations, 293 n. ; 
trade with, 575 ; currency reform, 
667 ; capital in, 697, 738 

Ryots, 243, 324 

S 

St. Simonism, 204 ; examined, 212 

Saving, defined, 70 ; enriches the com- 
munity, 72, 728 

Savoy, 260 n. 

Saxony, 269 ; peasant farms, 271 ; 
laws of marriage, 353 

Say, 44, 45, 59 ; on demand for labour 
Iq.v.), 80; on division of labour, 
123 ; Cours d'Economie Politique 
Pratique, ib. n. ; on demand and 
supply, 446 ; on over-supply, 
562 

Scotland, farming, 95 w., 102, 178, 
263; colHers, 387; banking, 677; 
agriculture, 704 ; co - operation, 
783 n. 

Senior, on Continental marriage laws, 
353 ; definition of profits, 405 ; on 
money, 505 ; on imports, 605 ; on 
gold and silver imports, 609 ; taxes, 
842-5 



1012 



INDEX 



Serfs, origin of, 17, 244 ; unproduc- 
tiveness of their labour, 252 ; 
gradual extinction, 253 

Sismondi, on capital, 67 n. ; on 
property, 231 «. ; on peasant pro- 
prietors, 258, 260 w., 289 ; on me- 
tayers, 303, 304 n.y 311, 315 n., 316 
n. ; on corporations, 355 w. ; on 
population, 375 ; on over-supply, 
557, 561-2 ; on usury, 926 

Slaney, Mr., 783, 906 n. 

Slavery, 249 ; unproductive labour of, 
251 ; in America, ih. ; compared 
with free labour, 253 ; negro 
S. abolished by England, Denmark, 
America, the Dutch (by 1865), 
254 n. ; still allowed by Spain in 
Brazil and Cuba (1865), 255 

Slaves, are not wealth, 8 ; Roman, 
17 ; West Indian S. ransomed 
[1834], 19 ; how maintained, 69 ; 
property in, 236 ; owned by the 
landowners, 239 

Sleswick-Holstein, 239 n. 

Smith, Adam, 2, 26, 67, 122-8 ; joint- 
stock companies, 140 ; Malthus, 
165 ; metayers, 305 ; workmen, 
356 n. ; on difference of wages in 
different employments, 885-97 ; 
retail profits, 410 ; value, 436-7, 
452, 566-8; foreign trade, 579; 
paper money, 632 ; interest, 638 ; 
capital, 726-7 ; on a stationary 
state, 747 ; taxation, 802 ; tax 
on wages, 828 ; house-rent, 832 ; 
usury, 926, 928-9 ; market-rate, 
937 

Socialism, 202 w., 203 ; examined, 
209-17, 792 

Spain, 190, 255; trade with, 583; 
capital in, 738 ; state of, 940 

Spice Islands, Dutch monopoly in, 
449 

Statics and Dynamics of political 
economy, 695 

Stationary state, the, 746-51 

Stein, land reforms, 334 

Supply, defined, 445 ; excess, 556-63 ; 
a general over- supply, 558-62 

Swan River Settlement, 65 

Sweden, trade with, 576 ; currency 
reform, 667 

Switzerland, 239 ; peasant proprie- 
tors, 258, 265, 271 ; population, 
291 ; laws of marriage, 354 ; trade 
with, 575 ; co-operation, 783 



t 

Taille, 883 

Taxation, fallacies of, 89 ; general 
principles of, 802-22 ; equality in, 
804, 813, 817 ; of land, 819 ; com- 
parison between direct and indirect 
T., 864-72 

Taxes, 15, 57, 466 ; income-T., 806- 
17; property T., 806-10; on 
profits, savings, and land, 811-19 ; 
direct T., 823-36; defined, 823; 
on rents, 832-6 ; on commodities, 
837-56 ; indirect T. defined, 837 ; 
tithes, 841 ; duties, 847-50 ; on 
imports and exports, 850-56 ; mis- 
cellaneous T., 857-63 

Thaer, on peasant proprietors, 271 

Thornton, on peasant proprietors, 
276 ; on English peasantry, 348 n. ; 
on allotments, 371 ; on paper 
credit (g.v.)> 515, 519; on inter- 
national values, 596 

Thiirgau, peasant-farms in, 263 

Tithes, incidence of, 841; see also 
Taxes 

Tooke, on corn prices, 447 n. ; on the 
currency, 521 n. ; on credit, 533-5 ; 
on bills, 536 n. ; on prices, 554 ; on 
bank credit, 648 ; on bank circula- 
tion, 652-5, 665 ; on money-prices 
of agricultural produce, 704 

Torrens, on international trade (g.v.)* 
576 n., 593 n, ; regulation of the 
currency, 657 '""** 

Trade, international, 574-82 ; de- 
fined, 574 ; fictitious examples, 
674-8 ; theories of, compared, 578- 
82 ; international values in, 584- 
606 ; equation of international de- 
mand, law of, 592, 600 ; value and 
cost in, 604 ; money in international 
T., 607-11 ; bills of exchange, 613; 
law of international T., 621, 629 ; 
free T., 701 

Turgot, on metayers, 307 

Tuscany, farming in, 179 ; agricultural 
tenure, 240 ; peasant proprietors, 
264 n. ; metayers, 303, 304 »., 311- 
16 

U 

Ulster, tenant-right, 318, 320, 336 n. 

United States, the, 103, 152, 157 w., 

158 n., 179, 194, 220, 229, 239, 313, 



INDEX 



1013 



430, 432, 655, 682, 721, 738, 907-8, 
921, 925 

Unsettled Questions of Political Eco- 
nomy, Essays on some, 48 n. 
Ural Mountains, gold mines, 485 
Uri, laws of marriage, 355 
Usury, 926-30 
Utility, 45, 442 



Value, 27; defined, 437; V. and 
price, 439^40; law of V., 448; 
natural V., 452 ; market V., 453-9 ; 
law of (again), 471 ; theory of V., 
summary of, 478-80; money V., 
488-98; measure of V., 564-8; 
peculiar cases of V., 569-73 ; inter- 
national v., 583-606 ; law of 
international V., 622-7 

Venice, 686 

Vexin, farms, 297 

ViUerme, on French labourers, 295 n. 

Villiaume, on co-operation, 769, 777 n., 
178 n. 

Voluntary system, 953, 977 



W 



Waes, Pays de, 147 n., 230 

Wages, 57, 253, 343-6; W. and 
population, 349-60 ; popular reme- 
dies for low W., 361-2 ; allotment 
system, 368 ; Continental, 371 ; 
emigration, 384; women's W. in 
factories, 400 ; fixed by custom, 
403 ; W. depends on profits, 419, 
477 ; low W. and underselling, 684 ; 
law of W., 688-9; tax on W., 
827-9 

Wakefield, on co-operation, 116-17 ; 
on colonisation, 121 ; on agricul- 
ture, 144-52 ; his system of emi- 
gration, 330, 382 ; on capital, 727, 



735 ; on protection, 925 ; on land 
in Colonies, 965 ; success of his 
colonisation system, 972-4 

Walker, G., on currency, 673 

Warehousing system, 867 

Watt, inventor, 41 ; efEect of his in- 
ventions, 193, 350 

Wealth, 1, 6, 9, 19, 47, 48, 74, 108 ; 
distribution of, 200 ; progressive 
state of, 695-9 ; stationary state of, 
746-51 

West, Sir E., on theory of rent, 
425 

West Indies, ransom of slaves in 
[1834], 19; expenditure in, 166; 
slaves in, 240; slave population, 
250, 253 ; Colonies, 685-6 

Westbury, Lord, 887 n. 

Westmorland, small farmers, 257 

Wiltshire, agricultural labourers, 357 

Women, work of, 119 ; efficiency of, 
128 ; wages of, 400 ; employments 
for, 401, 759-60, 959 

Wordsworth, on English peasantry, 
257 n. 

Wiirtemberg, peasant proprietors, 
239 w. ; laws of marriage, 353 



Young, Arthur, Travels in France 
(1787-9), 278-82; on population, 
295 n. ; on metayers, 303 n. ; on 
English farmers, 306 ; against me- 
tayers, 306, 307, 308, 310 



Z 



Zemindars, 325-7 

Zurich, workmen at, 109 ; peasant 

proprietors, 260, 262 n., 269; 

weavers, 398; manufacturers and 

agriculturists, 683 ; co-operation, 

783 



THE ENP 



printed by Spottiswoode, Ballantyne &• Co. Ltd, 
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